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Preparing Sales, Production, and Fabric Purchases Budgets

53. Curiosity Corner sells books and various other reading-related products. One of the store's most popular reading-related products is a book pillow for hard cover and soft cover books. The pillows each sell for $8.00. Originally the pillows were handmade by a local artisan. The store's owner has been impressed with the demand for pillow and has recently begun a small manufacturing company to produce and distribute the pillow to other stores. Estimated sales for the quarter (in units are as follows:

October 6,500
November 7,200
December 9,600
Total 23,300
Each pillow requires ½ yard of fabric that costs, on average, $6 per yard.

Please assist with the following:
A. Prepare a sales budget for the fourth quarter based on the above information.
B. Prepare a production budget for the pillow manufacturing company. The company did not have any inventory of pillows at the end of September, but the company does want to maintain a 10 percent inventory at the end of each month based on the next month's estimated sales. January's sales are expected to be low, given the post-holiday trends, and are estimated to be 4,800 units.
C. Prepare a fabric purchases budget. The company did not have any inventory of fabric at the end of September, but the company does want to maintain a fabric inventory equal to 20percent of the next month's material needs. January's projected production is expected to be 4,820 units.

Solution Summary

The solution assists in preparing sales budget, production budget, and fabric purchases budgets.

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