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ColorfulFurniture Company: Budgets for Q2 2020

Sales Budget for ColorfulFurniture

1.The ColorfulFurniture Company manufactures modern wood frame lounge sofas. Currently the company makes only one size of three-seat sofas, which is 35 inches deep by 90 inches wide. The final product consists of a routed, sanded, assembled, and stained wood sofa. Direct materials include oak wood frames and pre-made cushions. Other materials, such as wood legs, screws, hinges, sand paper, stain, and packaging, are treated as indirect materials. ColorfulFurniture is preparing budgets for the second quarter ending June 30, 2020.  For each requirement below prepare budgets by month for April, May, and June, and a total budget for the quarter.

1.The previous year’s sales (2019) for the corresponding period were:

April

May

June

July

August

540 sofas

680 sofas

920 sofas

1,220 sofas

750  sofas

The company expects the above volume of lounge sofa sales to increase by 10% for the period April 2020 – August 2020. The budgeted selling price for 2020 is $850.00 per sofa.  The company expects 15% of its sales to be cash (COD) sales.  The remaining 85% of sales will be made on credit.  Prepare a Sales Budget for ColorfulFurniture.

2.The company desires to have finished goods inventory on hand at the end of each month equal to 10 percent of the following month's budgeted unit sales.  On March 31, 2020, the company expects to have 65 sofas on hand. (Note: an estimate of sales in July is required in order to complete the production budget for June). Use the @ROUNDUP function to round up to the whole number the number of sofas desired in ending inventory. Prepare a Production budget.

3.The sofas require two direct materials: oak wood frames and pre-made cushions: Sixteen (16) feet of 4x1 oak wood are required for each sofa produced. Management desires to have materials on hand at the end of each month equal to 18 percent of the following month's sofa production needs. The beginning inventory of wood, April 2020, is expected to be 2,340 feet of wood. Oak wood is expected to cost $8.00 per foot. (Note: budgeted production in July is required in order to complete the direct materials budget for June. Use the @ROUNDUP function to round up to the whole number the number of feet of oak wood to purchase).

Pre-made cushions (30*30 inches) are purchased by a set of 10 cushions. Six (6) cushions are required for each sofa. Management desires to have cushions on hand at the end of each month equal to 13 percent of the following month's production needs.  Use the @ROUNDUP function to round up to the whole number the number of cushions desired in ending inventory. The beginning inventory, April 2020, is expected to be 630 cushions. The set of 10 cushions is expected to cost $200. (Note: budgeted production in July is required in order to complete the direct materials budget for June. Use the @ROUNDUP function to round up to nearest 10 the number of cushions to purchase). 

Prepare a Direct Materials budget. Also, because two direct materials are required for production - oak wood and cushions - you will need a separate schedule for each direct material.

4.Each sofa requires 10 hours of direct labor. ColorfulFurniture uses a series of table saws, table routers and sanders set up for specialized operations to achieve production efficiencies. Direct labor costs the company $20 per hour.  Prepare a Direct Labor budget.

5.ColorfulFurniture budgets indirect materials (e.g., wood legs, screws, hinges, sand paper, stain, and packaging) at $35.50 per sofa. ColorfulFurniture treats indirect labor and utilities as mixed costs. The variable components are $20.60 per sofa for indirect labor and $7.50 per sofa for utilities. The following fixed costs per month are budgeted for indirect labor, $55,000, utilities, $3,000, and other, $20,000.  Prepare a Manufacturing Overhead budget.  

6.Variable selling and administrative expenses are $50.50 per sofa sold.  Fixed selling and administrative expenses are $85,000 per month. These costs are not itemized, i.e., the budget has only two line items – variable operating expenses and fixed operating expenses.   Prepare an Operating Expenses budget.  

7.Prepare a Budgeted Manufacturing Cost per unit budget.  Refer to exhibit 9-11 for guidance. To calculate FMOH/unit calculate total FMOH for the year and divide this by budgeted production for the year. The total production volume for the year is budgeted at 10,000 sofas.

8.Prepare a Budgeted Income Statement for the quarter for ColorfulFurniture. Assume interest expense of $0, and income tax expense of 21% of income before taxes.

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