Question

New Production Equipment Purchase

The budget director of the Freeman Furniture Company requests estimates of sales, production, and other operating data from the various administrative units every month.

Selected information concerning sales and production data for February 20X9 is presented below.

1. Estimated Sales of King and Queens Chairs for February by Sales Territory

Midwest Region

King	680 units at $820 per unit
Queens	850 units at $540 per unit

Southern Region

King	390 units at $820 per unit
Queens	480 units at 4540 per unit

International Region

King	420 units at $870 per unit
Queens	330 units at $600 per unit

2. Estimated Inventories at February 1, 20X9

Direct Materials

Fabric	470 square yards
Wood	620 linear ft
Filler	300 cubic ft
Springs	710 units

Finished Products

King	105 units
Queens	35 units

3. Desired Inventories at February 28, 20X9

Direct Materials

Fabric	430 square yards
Wood	680 linear ft
Filler	350 cubic ft
Springs	660 units

Finished Products

King	95 units
Queens	40 units

4. Direct Materials Used in Production

In Manufacture of King

Fabric	6.5 square yards per unit of product
Wood	42 linear ft per unit of product
Filler	4.6 cubic ft per unit of product
Springs	18 units per unit of product

In Manufacture of Queens

Fabric	4.5 square yards per unit of product
Wood	30 linear ft per unit of product
Filler	3.8 cubic ft per unit of product
Springs	14 units per unit of product

5. Anticipated Purchase Price for Direct Materials for Both Products

Fabric	$16.00 per square year
Wood	$9.50 per linear ft
Filler	$4.50 per cubic
Springs

6. Direct Labor Requirements

King

Framing Department	1.2 hours at $16 per hour
Cutting Department	0.5 hours at $19 per hour
Upholstery Department	0.8 hours at $20 per hour

Queens

Framing Department	1.0 hours at $16 per hour
Cutting Department	0.4 hours at $19 per hour
Upholstery Department	0.6 hours at $20 per hour

1. Prepare a sales budget for February 20X9.
2. Prepare a production budget for February 20X9.
3. Prepare a direct materials purchases budget for February 20X9.
4. Prepare a direct labor budget for February 20X9.
5. The production supervisor wants to purchase new production equipment for April 20X9. The goal is to replace the labor-intensive production system. Please write a memo to the executive team explaining why new production equipment could affect the production and purchases budgets.

Answer 1

Answer 1 Sales Budget
	Midwest Region		Southern Region		International Region
	King	Queen	King	Queen	King	Queen
Sales in units	680	850	390	480	420	330
Selling Price per unit	$820	$540	$820	$540	$870	$600
Total sales (in $)	557600	459000	319800	259200	365400	198000

Answer 2 Production Budget in units
	King	Queen
Total products to be sold	1490	1660
Add: Ending FG	95	40
Less: Opening FG	-105	-35
Production required	1480	1665

Answer 3 Direct material purchase budget
	Fabric	Wood	Filter	Spring
Raw material required for sales
(6.5 x 1480) + (4.5 x 1665)	17113
(42 x 1480) + (30 x 1665)		112110
(4.6 x 1480) + (3.8 x 1665)			13135
(18 x 1480) + (14 x 1665)				49950
Total raw material rquired for sales	17113	112110	13135	49950
Add: Ending inventory	430	680	350	660
Less: Opening inventory	-470	-620	-300	-710
Raw material purchases required in units	17073	112170	13185	49900
Purchase cost per unit	$16	$9.50	$4.50
Raw material purchases required in amount	$273,168	$1,065,615	$59,333

Answer 4 Direct labour budget
	Departments
	Framing	Cutting	Upholstery
King chair:
Production in units	1480	1480	1480
Hours per unit required	1.2	0.5	0.8
Total hours required	1776	740	1184
Rate per hour	$16	$19	$20
Direct labor cost (a)	$28,416	$14,060	$23,680
Queen chair:
Production in units	1665	1665	1665
Hours per unit required	1	0.4	0.6
Total hours required	1665	666	999
Rate per hour	$16	$19	$20
Direct labor cost (b)	$26,640	$12,654	$19,980
Total direct labour Cost (a + b)	$55,056	$26,714	$43,660