Crosson Wineries & Bottling Is Preparing Its Budget for 2010

question 18

Essay

Crosson Wineries & Bottling is preparing its budget for 2010 and has completed the sales budget for the first six months of the year.The projected volume is as follows:
$$\begin{array} { | l r | } \hline \text { January } & 50,000 \text { bottles } \\\text { February } & 60,000 \text { bottles } \\\text { March } & 100,000 \text { bottles } \\\text { April } & 80,000 \text { bottles } \\\text { May } & 40,000 \text { bottles } \\\text { June } & 20,000 \text { bottles } \\\hline\end{array}$$
The desired ending inventory for each month must be equal to 30 percent of the next month's sales.The December 31,2009,inventory was 15,000 bottles.
a. Prepare the production budget for the first four months of 2010.
b. Explain why Crosson Wineries & Bottling must produce more bottles than it sells in January and February, and why it must produce fewer bottles than it sells in March and April.
c. Assume each finished bottle requires 25 ounces of wine and that the ending inventory each month must be equal to 20 percent of the next month's production needs. The December 31, 2009, inventory of wine was 265,000 ounces. Prepare the direct materials purchases budget for the first three months of 2010.

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Definitions:

General Operating Expenses

These are the day-to-day expenses necessary for the management and administration of a business, such as rent, utilities, and payroll.

Collections

The process of pursuing payment on debts owed by individuals or businesses, typically involving accounts receivable.

Credit Sales

Transactions where the buyer purchases goods or services on credit, agreeing to pay the seller at a later date, thus generating accounts receivable for the seller.

Monthly Sale

Financial transactions or revenue generated from sales within a particular month.