Kawaii Kayaks (KK)
Richard Fiesel is preparing the 2021 budget for one of KK’s kayaks. Extensive meetings with members of the sales department and executive management team have resulted in the following unit sales projections for 2021.
Quarter 1
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1,200 kayaks
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Quarter 2
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1,500 kayaks
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Quarter 3
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750 kayaks
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Quarter 4
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700 kayaks
|
|
|
KK’s policy is to have finished goods ending inventory in a quarter equal to 20% of the next quarter's anticipated sales. Preliminary sales projections for 2022 are 1,100 units for the first quarter and 1,500 units for the second quarter. Ending inventory of finished goods at December 31, 2020, will be 200 kayaks.
Production of each kayak requires 54 pounds of polyethylene powder and a finishing kit (rope, seat, hardware, etc.). Company policy is that the ending inventory of polyethylene powder should be 25% of the amount needed for production in the next quarter. Assume that the ending inventory of polyethylene powder on December 31, 2020, is 19,400 pounds. The finishing kits can be assembled as they are needed. As a result, KK does not maintain a significant inventory of the finishing kits.
The polyethylene powder used in these kayaks costs $1.55 per pound, and the finishing kits cost $150 each. Production of a single kayak requires 3 hours of time by more experienced, type I employees and 4 hours of finishing time by type II employees. The type I employees are paid $20 per hour, and the type II employees are paid $15 per hour.
Selling and administrative expenses for this line are expected to be $50 per unit sold plus $7,300 per quarter. Manufacturing overhead is assigned at 150% of labor costs.
Using your sales pricing decision, prepare the following budgets (include quarterly and yearly totals):
Sales Budget, Budgeted Income Statement