Submission Assignment 2

Assignment Details

Chicago Furniture Company produces combination desk and chair sets for the elementary schools in the Midwest. As the second quarter is progressing it is important for the controller to complete a budget for the third quarter. The sales department manager has provided the following forecast.

July	8,000 desk combos
August	8,700 desk combos
September	7,600 desk combos
October	8,700 desk combos
November	8,800 desk combos

• In order to ensure Just-in-Time (JIT) deliveries are maintained in accordance with the needs of the schools Chicago Furniture Company has a standing policy that the inventory at the end of each month must be equal to 40% of the following months forecasted sales. On July 1st there will be 3,200 desk combos in inventory.
• The building of each desk combo requires 12 board feet of pine planks which cost $0.70 per foot. In order to maintain proper inventory for building the desk combos the department must have 30% of the next months production requirements.

Using the information you developed in Submission Lesson #1 below, write 3-4 pages discussing the following:

• Why is the preparation of a sales forecast one of the earliest steps in preparing a master budget?
• Explain at least three ways a company can benefit from preparing a formal budget.

Production Budget Budgeted sales Add: Closing inventory (40% of next month sales) Total requirements Less: Opening inventory Production budget July 8,000 3,480 11,480 3,200 8,280 August September Quarter 8,700 7,600 24,300 3,040 3,480 3,480 11,740 27,780 3,480 3,040 3,200 8,260 8,040 24,580 October November 8,700 8,800 3,520 12,220 3,480 8,740 Material purchase budget October 8,740 104,880 Production units Material needed per production unit (board feet) Budgeted material needed for production Add: Closing inventory (30% of next month requirement) Total requirements Less: Opening inventory Purchase Budget - Direct materials (board feet) Purchase price per foot Total Direct Material Purchase Budget (Value) July 8,280 12 99,360 29,736 129,096 29,808 99,288 $ 0.70 $ 69,502 August September Quarter 8,260 8,040 24,580 12 12 12 99,120 96,480 294,960 28,944 31,464 31,464 128,064 127,944 326,424 29,736 28,944 29,808 98,328 99,000 296,616 $ 0.70 $ 0.70 $ 0.70 $ 68,830 $ 69,300 $207,631