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Problem #1 Tandy, Inc. is in the business of manufacturing men’s and women’s leather computer bags.  On...

Problem #1

Tandy, Inc. is in the business of manufacturing men’s and women’s leather computer bags.  On January 1, 2019 they started their new fiscal year.  The following is their trial balance as of December 31, 2018:

            Account                                               Dr                                Cr

            Cash                                                     $   43,200

            Accounts Receivable                            $     9,000

            Raw Materials Inventory (1)                  $    20,240

            Work in Process Inv. (2)                         $            0

            Finished Goods Inv. (3)                          $     8,100

            Land                                                     $ 225,000

            Equipment                                           $ 310,000

            Vehicles                                               $   84,200

            Accumulated Depreciation                                                       $     55,100

            Long-term Investments                        $   78,500

            Accounts Payable                                                                     $     14,700

            Wages Payable                                                                         $       8,470

            Mortgage Payable (4)                                                                $  214,500

            Common Stock (5)                                                                    $    25,000

            APIC                                                                                         $  125,000

            Retained Earnings                                                                     $   335,470

                        Totals                                       $    778,240                  $   778,240

Includes 2,860 feet of leather at $4 per foot, 5,000 feet of nylon lining at $1.25 per foot, and 510 golden buckles at $5 per buckle

No bags are currently in process at the beginning of January

Includes 150 completed bags (manufacturing overhead has been applied)

Monthly payments (interest and principle) are $ 2,500

$0.10 par value, 300,000 share authorized and 250,000 share outstanding

For the coming year, you have been put in charge of creating the operational budget schedules and the cash budget.  Below is information for the first three months of the fiscal year.

Sales Forecasts

For this coming year, you have raised your sales price to $155 per bag.  Based on sales contracts you have signed with your major corporate customers, you anticipate the following sales for the first three months of 2019:

            January            235 bags

            February          220 bags

            March              190 bags

According to the terms of the sales contracts you require each customer to pay 80% of the sales price in the month of sale and 18% in the month following.  In December 2018, Tandy had $30,000 in total sales.

The production process

Each bag produced requires 4 feet of leather, 9 feet of nylon, 3 gold buckles, and 3.5 hours of direct labor.  Currently you are paying your assembly workers $17 / hour. In order to meet the following month’s demand, Tandy desires to keep 15% of the next month’s sales in Finished Goods Inventory.  Tandy is forecasting sales in April, 2019 of 285 bags.  Additionally, they also keep 30% of next month’s production needs in raw materials inventory.  Tandy anticipates production of 255 units in April, 2019.  Tandy has signed contracts with their suppliers to purchase leather at $4 a foot and buckles at $5 per buckle for the following year.  Their policy is to pay for 75% of raw materials at the time of purchase and the remaining 25% in the following month.  

Required

Please prepare the sales and production budgets for January – March of 2019.

Please show work on how to arrive at answers.

Homework Answers

Answer #1

Solution:

Sales Budget - Tandy Inc.
Particulars January February March Total
Budgeted sales units (Bags) 235 220 190 645
Selling price per unit $155.00 $155.00 $155.00 $155.00
Budgeted sales $36,425.00 $34,100.00 $29,450.00 $99,975.00

Production Budget - Tandy Inc.

Particulars January February March Total
Budgeted sales units (Bags) 235 220 190 645
Desired ending inventory (15% of next month sales) 33 29 43 43
Beginning inventory 150 33 29 150
Budgeted production units 118 216 204 538
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Problem #1 Tandy, Inc. is in the business of manufacturing men’s and women’s leather computer bags.  On...
Problem #1 Tandy, Inc. is in the business of manufacturing men’s and women’s leather computer bags.  On January 1, 2019 they started their new fiscal year.  The following is their trial balance as of December 31, 2018:             Account                                               Dr                                Cr             Cash                                                     $   43,200             Accounts Receivable                            $     9,000             Raw Materials Inventory (1)                  $    20,240             Work in Process Inv. (2)                         $            0             Finished Goods Inv. (3)                          $     8,100             Land                                                     $ 225,000             Equipment                                           $ 310,000             Vehicles                                               $   84,200             Accumulated Depreciation                                                       $     55,100             Long-term Investments                        $   78,500             Accounts Payable                                                                     $     14,700             Wages Payable                                                                         $       8,470             Mortgage Payable (4)                                                                $  214,500             Common Stock (5)                                                                    $    25,000             APIC                                                                                         $  125,000             Retained Earnings                                                                     $   335,470                         Totals                                       $    778,240                  $   778,240 Includes 2,860 feet of leather...
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