Sales Forecasts; Purchases and Materials Requirements. The management of Soyar Food Products, Inc. decided to install a budgetary control system un- der the supervision of a budget director and her committee. The company manufactures, together with many other food articles, a patented breakfast
food that is sold in packages of two sizes – I lb. and 2 lb. The cereal is made from two types of grain, called R (rye) and S (soy) for this purpose. There are two operations: (a) processing and blending and (b) packaging. The grains are purchased by the bushel measure, a bushel of R containing 70 Ibs. and a bushel of S containing 80 Ibs. Three bushels of grain mixed in the proportion of 2R: I S produce 1981bs. of finished product; the entire loss occurs in the first department.
To prepare estimated sales figures for the first six months of the coming year, the budget committee first asked the salesmen to prepare sales estimates on which the committee might base its own next six-month sales forecast. The salesmen's budget in condensed form showed:
Salesmen's Estimates of Sales in Units
TERRITORIES
I
/I
11/
Other
6 Months' Total
l-Ib. package …..
10,000
15,000
12,000
613,000
650,000
2-lb. package …..
12,000
18,000
12,000
783,000
825,000
Total ………..
22,000
33,000
24,000
1,396,000
1,475,000
The figures submitted by the salesmen are analyzed by the budget committee in the light of general business conditions. The company uses the Federal Reserve Board Index together with its own trade index to prepare a trend per- centage that exists in the business. The trend percentage indicates that a .91 general index figure should be applied to the salesmen's estimates in order to arrive at the final sales figures. The monthly sales figure is to be set up as one sixth of the total figure finally computed. The finished goods inventory is to be kept at zero if possible; the work in process inventory near the present level, which is about 160,000 lbs. of blended material.
Factory facilities permit processing sales requirements as stated in the sales budget. The production manager decided to accept the monthly sales figures for his production budget.
Purchases of grains in bushels have been arranged for delivery as follows:
Type R Type S
Quantity (bu.) Price Quantity (bu.) Price
January ……………. 5,000 $1.30 2,000 $1.20
February … ” ………. 2,000 1.40 1,000 1.20
March …………….. -0- -0- 3,000 1.25
April ……………… 8,000 1. 50 3,000 1.00
May …………. '” … 3,000 1.50 -0- -0- June ………………. 4,000 1.60 4,000 1.00
Beginning Inventory,
January] ………… ]0,000 1.20 3,000 1.00
Raw materials are charged into production on the fifo basis.
Required: (1) A revised sales forecast based on the index.
(2) A sales forecast on a dollar basis; the I-lb. package sells for $.25 and the
2-lb. package for $.50.
(3) A schedule of raw materials purchases.
(4) A computation of raw materials requirements for production.
(5) A schedule of the raw materials account (fifo basis), indicating beginning inventory, purchases, usage, and ending inventory for the six-month period taken as a whole.