Cathy’s Cookies produces cookies for resale at local grocery stores. The company is currently in the process of establishing a master budget on a quarterly basis for this coming fiscal year, which ends December 31. Prior year quarterly sales were as follows (1 unit = 1 batch): First quarter: 8,000 units Second quarter: 9,600 units Third quarter: 12,000 units Fourth quarter: 10,400 units Unit sales are expected to increase 20%, and each unit is expected to sell for $5. Management prefers to maintain ending finished goods inventory equal to 15% of next quarter's sales. Assume finished goods inventory at the end of the fourth quarter budget period is estimated to be 2,000 units. Required: 1) Prepare a sales budget for Cathy’s Cookies. (2) Prepare a production budget for Cathy’s Cookies. (3) What can you interpret about Cathy’s Cookies Sales Budget? Trends?
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Problem #6: Operating Budgets
Cathy’s Cookies produces cookies for resale at local grocery stores. The company is currently in the process of establishing a
First quarter: 8,000 units
Second quarter: 9,600 units
Third quarter: 12,000 units
Fourth quarter: 10,400 units
Unit sales are expected to increase 20%, and each unit is expected to sell for $5. Management prefers to maintain ending finished goods inventory equal to 15% of next quarter's sales. Assume finished goods inventory at the end of the fourth quarter budget period is estimated to be 2,000 units.
Required:
1) Prepare a sales budget for Cathy’s Cookies.
(2) Prepare a production budget for Cathy’s Cookies.
(3) What can you interpret about Cathy’s Cookies Sales Budget? Trends?
Sales (units) for the quarter = Prior year quarterly sales + 20% increase
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