Number of visitors to the island from January 2007 to May 2007 were 125,000, 125,000, 150,000, 125,000 and 125,000, respectively. (For simplicity, we assume each visitor, on average, purchases one milk shake. (Students can get more elaborate and research the average number of days visitors stay and the average number of couples, versus families with kids). The sales mix and the sales price will be consistent with the first part of the case at 40% small and 60% large with the sales price set at the competitors price of $10 for large and $7 for small (less the resort fee of 10%). SALES BUDGET for 1st qtr January February March 1stqtr Total April May Large shakes expected to be sold: (visitors*.60) Expected sales price ($10*90%) Total sales ($) Small shakes expected to be sold: (visitors * .40) Expected sales price ($7*90%) Total sales ($) TOTAL SALES The next budget to be prepared is the Production budget, where the number of milk shakes needed to be produced (based on the sales budget) are determined. This will equal: Number of milk shakes expected to be sold + safety stock (ending finished goods inventory) in case demand is higher than predicted Total milk shakes needed Less: Beginning finished goods inventory (which is zero at the start of business) Milk shakes needed to be produced To prepare the production budget we used the following assumptions: 10% of next months expected milk shake sales is desired to be left in ending inventory as a safety cushion. Remember, beginning inventory is last months ending inventory. PRODUCTION BUDGET - 1st QTR January February March 1st Qtr total April Large shakes (sales budget) + desired ending inventory Total needed Less: beginning inventory Large shakes to produce PRODUCTION BUDGET - 1st QTR January February March 1st Qtr total April Small shakes (sales budget) + desired ending inventory Total needed Less: beginning inventory Small shakes to produce

Number of visitors to the island from January 2007 to May 2007 were 125,000, 125,000, 150,000, 125,000 and 125,000, respectively. (For simplicity, we assume each visitor, on average, purchases one milk shake. (Students can get more elaborate and research the average number of days visitors stay and the average number of couples, versus families with kids). The sales mix and the sales price will be consistent with the first part of the case at 40% small and 60% large with the sales price set at the competitors price of $10 for large and $7 for small (less the resort fee of 10%). SALES BUDGET for 1st qtr January February March 1stqtr Total April May Large shakes expected to be sold: (visitors.60) Expected sales price ($1090%) Total sales ($) Small shakes expected to be sold: (visitors * .40) Expected sales price ($7*90%) Total sales ($) TOTAL SALES The next budget to be prepared is the Production budget, where the number of milk shakes needed to be produced (based on the sales budget) are determined. This will equal: Number of milk shakes expected to be sold + safety stock (ending finished goods inventory) in case demand is higher than predicted Total milk shakes needed Less: Beginning finished goods inventory (which is zero at the start of business) Milk shakes needed to be produced To prepare the production budget we used the following assumptions: 10% of next months expected milk shake sales is desired to be left in ending inventory as a safety cushion. Remember, beginning inventory is last months ending inventory. PRODUCTION BUDGET - 1st QTR January February March 1st Qtr total April Large shakes (sales budget) + desired ending inventory Total needed Less: beginning inventory Large shakes to produce PRODUCTION BUDGET - 1st QTR January February March 1st Qtr total April Small shakes (sales budget) + desired ending inventory Total needed Less: beginning inventory Small shakes to produce

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Number of visitors to the island from January 2007 to May 2007 were 125,000, 125,000, 150,000, 125,000 and 125,000, respectively. (For simplicity, we assume each visitor, on average, purchases one milk shake. (Students can get more elaborate and research the average number of days visitors stay and the average number of couples, versus families with kids).

The sales mix and the sales price will be consistent with the first part of the case at 40% small and 60% large with the sales price set at the competitors price of $10 for large and $7 for small (less the resort fee of 10%).

SALES BUDGET for 1^stqtr	January	February	March	1^stqtr Total	April	May
Large shakes expected to be sold: (visitors*.60)
Expected sales price ($10*90%)
Total sales ($)

Small shakes expected to be sold: (visitors * .40)
Expected sales price ($7*90%)
Total sales ($)
TOTAL SALES

The next budget to be prepared is the Production budget, where the number of milk shakes needed to be produced (based on the sales budget) are determined. This will equal:

Number of milk shakes expected to be sold

+ safety stock (ending finished goods inventory) in case demand is higher than predicted

Total milk shakes needed

Less: Beginning finished goods inventory (which is zero at the start of business)

Milk shakes needed to be produced

To prepare the production budget we used the following assumptions:

10% of next months expected milk shake sales is desired to be left in ending inventory as a safety cushion.
Remember, beginning inventory is last months ending inventory.

PRODUCTION BUDGET - 1^st QTR	January	February	March	1^st Qtr total	April
Large shakes (sales budget)
+ desired ending inventory
Total needed
Less: beginning inventory
Large shakes to produce

PRODUCTION BUDGET - 1^st QTR	January	February	March	1^st Qtr total	April
Small shakes (sales budget)
+ desired ending inventory
Total needed
Less: beginning inventory
Small shakes to produce

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