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Chapter 6: Problem 26

Revenues and production budget. Saphire, Inc., bottles and distributes mineral water from the company's natural springs in northern Oregon. Saphire markets two products: 12-ounce disposable plastic bottles and 1 -gallon reusable plastic containers. 1\. For \(2018,\) Saphire marketing managers project monthly sales of 500,000 12-ounce bottles and 130,0001 -gallon containers. Average selling prices are estimated at \(0.30\) per 12 -ounce bottle and \(1.60\) per 1 -gallon container. Prepare a revenues budget for Saphire, Inc., for the year ending December 31,2018 2\. Saphire begins 2018 with 980,000 12-ounce bottles in inventory. The vice president of operations requests that 12 -ounce bottles ending inventory on December \(31,2018,\) be no less than 660,000 bottles. Based on sales projections as budgeted previously, what is the minimum number of 12 -ounce bottles Saphire must produce during \(2018 ?\) 3\. The VP of operations requests that ending inventory of 1 -gallon containers on December \(31,2018,\) be 300,000 units. If the production budget calls for Saphire to produce 1,200,0001 -gallon containers during \(2018,\) what is the beginning inventory of 1 -gallon containers on January \(1,2018 ?\)

Short Answer

Expert verified
The total revenues budget for Saphire, Inc. in 2018 is $4,296,000. The minimum number of 12-ounce bottles Saphire must produce in 2018 is 5,680,000 bottles. However, the given information does not allow us to determine the beginning inventory of 1-gallon containers on January 1, 2018, because the calculated result is negative, implying inconsistency in the provided input data.

Step by step solution

01

Calculate the Annual Sales of Each Product

First, we will calculate the annual sales of each product by multiplying the monthly sales of each product by 12. Annual sales of 12-ounce bottles = 500,000 bottles/month * 12 months = 6,000,000 bottles Annual sales of 1-gallon containers = 130,000 containers/month * 12 months = 1,560,000 containers
02

Calculate the Revenues Budget for Each Product

Now, we will calculate the revenue generated from the sales of each product by multiplying the annual sales by their respective average selling prices. Revenue from 12-ounce bottles = 6,000,000 bottles * \(0.30 = \)1,800,000 Revenue from 1-gallon containers = 1,560,000 containers * \(1.60 = \)2,496,000
03

Prepare the Revenues Budget for 2018

We will now sum the revenues generated from the sales of both products to prepare the total revenues budget for Saphire, Inc. for 2018. Total Revenues Budget for 2018 = Revenue from 12-ounce bottles + Revenue from 1-gallon containers = \(1,800,000 + \)2,496,000 = $4,296,000
04

Calculate the Minimum Number of 12-ounce Bottles Saphire Must Produce in 2018

We will now find the minimum number of 12-ounce bottles Saphire must produce in 2018 using the given sales projections and inventory requirements. For this, we will add the required ending inventory to the annual sales projection and subtract the beginning inventory. Minimum number of 12-ounce bottles to be produced = Annual sales of 12-ounce bottles + Required ending inventory - Beginning inventory = 6,000,000 bottles + 660,000 bottles - 980,000 bottles = 5,680,000 bottles
05

Calculate the Beginning Inventory of 1-gallon Containers on January 1, 2018

Finally, we will find the beginning inventory of 1-gallon containers on January 1, 2018 by adding the required ending inventory to the annual sales projection, and then subtracting the production during 2018. Beginning inventory of 1-gallon containers = Production during 2018 - Annual sales of 1-gallon containers - Required ending inventory = 1,200,000 containers - 1,560,000 containers - 300,000 containers = -660,000 containers Since we cannot have negative beginning inventory, the given information is not consistent. Please double-check the provided data and make necessary changes before performing the calculations.

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Key Concepts

These are the key concepts you need to understand to accurately answer the question.

Saphire Inc Mineral Water Distribution
Saphire Inc is strategically positioned to capitalize on the ever-growing demand for pure mineral water. With its natural springs located in northern Oregon, the company serves as a key player in the bottled water market. By distributing two main products鈥�12-ounce disposable plastic bottles and 1-gallon reusable plastic containers鈥擲aphire Inc aims to cater to different consumer needs. Whether it's for on-the-go hydration with smaller bottles or bulk purchasing with 1-gallon containers, Saphire offers solutions to meet diverse preferences and consumption habits.
Their distribution strategy connects directly to their production and sales targets which are essential for maintaining market relevance and ensuring efficient operation.
12-Ounce Bottles and 1-Gallon Containers
In the mineral water industry, product differentiation is significant to meet varying consumer needs. At Saphire Inc, the focus has been on 12-ounce bottles and 1-gallon containers. These product sizes target different market segments. The 12-ounce bottles are ideal for individual, on-the-go use, reflecting convenience, and disposability.
On the other hand, 1-gallon containers cater to families or individuals who prefer buying in bulk, offering a cost-effective option for regular use. Understanding these market dynamics is crucial to Saphire's inventory management and production strategy, aiming to balance between product availability and consumer demand.
Inventory Management and Production Planning
Effective inventory management and production planning are vital to streamline operations at Saphire Inc. For 2018, careful consideration was placed on balancing both costs and product availability. Saphire started the year with substantial beginning inventories of their products but aimed to end with configurations that align with projected demands.
  • For the 12-ounce bottles, starting with 980,000 units and planning to end with at least 660,000 units required precise production calculations to ensure enough inventory was available to meet projected sales of 6,000,000 units.
  • For the 1-gallon containers, the discrepancy in calculated beginning inventory highlights the importance of accurate data and planning processes. This ensures production aligns with sales projections and ending inventory goals, thus minimizing the risk of stock-outs or excesses.
Understanding these aspects helps Saphire optimize resources and reduce waste, guaranteeing a smooth supply chain throughout the year.
Annual Sales and Revenue Calculations
Calculating annual sales and revenue involves several key steps that are essential for budgeting and forecasting at Saphire Inc. This includes multiplying the monthly sales projections by 12 to get the total annual sales and multiplying these figures by the selling price to determine revenue.
For example, with sales of 500,000 bottles per month at $0.30 each, the annual sales calculation for 12-ounce bottles reaches 6,000,000, resulting in $1,800,000 in revenue. Similarly, the 1-gallon containers, with monthly sales of 130,000 units at $1.60 each, result in annual sales of 1,560,000 units and $2,496,000 in revenue.
  • The total revenue budget sums up to $4,296,000, combining both products' contributions.
Such financial insights are pivotal for Saphire, guiding strategic decisions and ensuring sustained growth in the competitive bottled water market.

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Most popular questions from this chapter

Operating and financial budgets. Which of the following statements is correct regarding the drivers of operating and financial budgets? a. The sales budget will drive the cost of goods sold budget. b. The cost of goods sold budget will drive the units of production budget. c. The production budget will drive the selling and administrative expense budget. d. The cash budget will drive the production and selling and administrative expense budgets.

What are the four elements of the budgeting cycle?

Budgeting; direct material usage, manufacturing cost, and gross margin. Xander Manufacturing Company manufactures blue rugs, using wool and dye as direct materials. One rug is budgeted to use 36 skeins of wool at a cost of \( 2\) per skein and 0.8 gallons of dye at a cost of \(6\) per gallon. All other materials are indirect. At the beginning of the year Xander has an inventory of 458,000 skeins of wool at a cost of \(961,800\) and 4,000 gallons of dye at a cost of \(23,680 .\) Target ending inventory of wool and dye is zero. Xander uses the FIF0 inventory cost-flow method. Xander blue rugs are very popular and demand is high, but because of capacity constraints the firm will produce only 200,000 blue rugs per year. The budgeted selling price is \(2,000\) each. There are no rugs in beginning inventory. Target ending inventory of rugs is also zero. Xander makes rugs by hand, but uses a machine to dye the wool. Thus, overhead costs are accumulated in two cost pools- one for weaving and the other for dyeing. Weaving overhead is allocated to products based on direct manufacturing labor-hours (DMLH). Dyeing overhead is allocated to products based on machine-hours (MH). There is no direct manufacturing labor cost for dyeing. Xander budgets 62 direct manufacturing laborhours to weave a rug at a budgeted rate of \(13\) per hour. It budgets 0.2 machine-hours to dye each skein in the dyeing process. 1\. Prepare a direct materials usage budget in both units and dollars. 2\. Calculate the budgeted overhead allocation rates for weaving and dyeing. 3\. Calculate the budgeted unit cost of a blue rug for the year. 4\. Prepare a revenues budget for blue rugs for the year, assuming Xander sells (a) 200,000 or (b) 185,000 blue rugs (that is, at two different sales levels). 5\. Calculate the budgeted cost of goods sold for blue rugs under each sales assumption. 6\. Find the budgeted gross margin for blue rugs under each sales assumption. 7\. What actions might you take as a manager to improve profitability if sales drop to 185,000 blue rugs? 8\. How might top management at Xander use the budget developed in requirements \(1-6\) to better manage the company?

Explain how the choice of the type of responsibility center (cost, revenue, profit, or investment) affects behavior.

Comprehensive operating budget. Skulas, Inc., manufactures and sells snowboards. Skulas manufactures a single model, the Pipex. In late 2017 , Skulas's management accountant gathered the following data to prepare budgets for January 2018 : Skulas's CEO expects to sell 2,900 snowboards during January 2018 at an estimated retail price of \(650\) per board. Further, the CEO expects 2018 beginning inventory of 500 snowboards and would like to end January 2018 with 200 snowboards in stock. Variable manufacturing overhead is \( 7\) per direct manufacturing labor-hour. There are also \( 81,000\) in fixed manufacturing overhead costs budgeted for January \(2018 .\) Skulas combines both variable and fixed manufacturing overhead into a single rate based on direct manufacturing labor-hours. Variable marketing costs are allocated at the rate of \( 250\) per sales visit. The marketing plan calls for 38 sales visits during January 2018\. Finally, there are \( 35,000\) in fixed nonmanufacturing costs budgeted for January 2018 Other data include: The inventoriable unit cost for ending finished-goods inventory on December \(31,2017,\) is \( 374.80 .\) Assume Skulas uses a FIF0 inventory method for both direct materials and finished goods. Ignore work in process in your calculations. 1\. Prepare the January 2018 revenues budget (in dollars). 2\. Prepare the January 2018 production budget (in units). 3\. Prepare the direct material usage and purchases budgets for January 2018 4\. Prepare a direct manufacturing labor costs budget for January 2018 5\. Prepare a manufacturing overhead costs budget for January 2018 6\. What is the budgeted manufacturing overhead rate for January \(2018 ?\) 7\. What is the budgeted manufacturing overhead cost per output unit in January \(2018 ?\) 8\. Calculate the cost of a snowboard manufactured in January 2018 . 9\. Prepare an ending inventory budget for both direct materials and finished goods for January 2018. 10\. Prepare a cost of goods sold budget for January 2018 11\. Prepare the budgeted income statement for Skulas, Inc., for January 2018 12\. What questions might the CEO ask the management team when reviewing the budget? Should the CEO set stretch targets? Explain briefly. 13\. How does preparing the budget help Skulas's management team better manage the company?
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