Fill This Form To Receive Instant Help
Fill This Form To Receive Instant Help
Homework answers / question archive / Power-Ride Inc
Power-Ride Inc. is a privately owned business in Western Canada that has found success with the production of two-wheeled, self-balancing personal transportation vehicles called Ride-Outs. The popularity of two-wheeled personal transportation vehicles is continuing to grow in both the private consumer and commercial markets. Two-wheeled personal transportation vehicles give people the option to use battery power as an alternative to cycling or walking.
Power-Ride was founded eight years ago by two siblings, Ryan and Nick, who love the outdoors. Ryan suffers from severe asthma and had to significantly reduce his outdoor activities — until he discovered two-wheeled personal transportation vehicles during a European vacation. He is very passionate about the business. Given that the business is mostly seasonal, growth is heavily dependent on the weather; however, the company is seeing an overall steady growth pattern.
It is now October 2019, and it is time to start preparing the 2020 budget for presentation to the board.
You, CPA, are the controller for Power-Ride and have been asked by the owners to help prepare the documents required for the budget.
Task #1
Ride-Out sales are highest in the spring and summer months, when private consumer purchases peak. The most profitable months are always March to May, when outdoor adventure stores are preparing for the summer season.
This past summer was a difficult one. Due to poor weather across the region, annual sales last year dipped 4% over the prior three-year average. Fortunately, there is no indication that the bad weather will repeat this year.
You have obtained the following sales data for the past 12 months:
Month Units sold
January 74
February 90
March 210
April 240
May 255
June 205
July 180
August 160
September 90
October (forecast) 85
November (forecast) 70
December (forecast) 65
Power-Ride had a one-time special order in April for 15 Ride-Outs that is not expected
to occur this upcoming year. One of Power-Ride's retailers, Outfitters Inc., recently
closed. It accounted for 5% of regular sales for January to March, and 8% of regular
sales for the remainder of the year. The Ride-Outs currently sell for $1,400 per unit, and
the company is planning to increase the selling price by 5% for the coming year.
Market research shows that two-wheeled personal transportation vehicles are gaining
popularity with those who live in hilly or windy areas and those with reduced fitness
levels. As a result, experts are predicting that sales growth in this market will be at least
6% in the coming year. Power-Ride requires inventories of finished goods on hand at
the end of each month to be equal to 50% of the following month's budgeted sales.
Power-Ride expects to have 20 units on hand on December 31, 2019.
How do I prepare a monthly sales budget in both units and dollars for the 2020 fiscal year. In
addition, how do I prepare a budget in units to forecast required monthly production to meet
expected sales.
Answer:
Monthly Sales Budget for the year 2020:
(In units) (Amount in $)
Jan : 78 $114660
Feb: 94 $138180
Mar: 220 $323400
April: 229 $336630
May: 259 $380730
June: 208 $305760
July: 183 $269010
Aug: 162 $238140
Sept: 91 $133770
Oct: 86 $126420
Nov: 71 $104370
Dec: 66 $97020
For January month: Units: 78 Amount:
Monthly Production Budget for the year 2020:
Jan : 98
Feb : 133
March: 267
April: 340
May: 374
June: 337.5
July: 287
Aug: 253.5
Sept: 172
Oct: 131.5
Nov: 114
Dec: 101.5
Steps:
And the following steps are stated in the explanation part.
Step-by-step explanation
Sales budget is a statement that helps to forecast the sales units (also price) that are likely to be sold in future so that relevant strategies regarding future sales can be formulated.
Also it provides a level of standard units that should be ideally sold in the upcoming period which further helps to evaluate and compare actual performance for controlling deviations.
Following are the steps that are followed for preparing the above Sales Budget of Power-Ride Inc. for the year 2020.
Step 1 (Row 3) : The sales of previous year recorded as a base.
Step 2 (Row 4) : 4% reduced sales that were there in 2019, are not a part of year 2020. Hence added back.
Step 3 (Row 5) : Reduction of 15 units in April due to lack of special order.
Step 4 (Row 7): Decrease in 5% (jan to mar) and 8% (april to dec) due to closure of Outfitters Inc.
Step 5 (Row 9): 6% estimated growth added due to estimation by experts.
Step 6 (Row 10): since units cannot be in decimals, so rounding them off to nearest whole numbers.
Step 7 (Row 11) : Multiplying no. of units of each month to their per unit price i.e. $1400 + 5% = $1470
Step 8 (Row 12): Obtaining the final Sales amount in $.
Production Budget helps to estimate the units of commodities to be produced for a smooth functioning of the business operations in the future. It includes the amount to be sold and units of stock to be maintained because by adding them the total units to be produced in a period are obtained.
Following steps are involved in preparing the production budget:
Step 1 (Row 17): No. of units sold during the period i.e.2020 are recorded.
Step 2 (Row 18): closing stock to be maintained is added which is 50% of the previous month. For jan 2020, 20 units of dec 2019 are given.
Step 3 (Row 19): obtaining the final units to be produced.
Reference:
https://theinvestorsbook.com/sales-budget.html
PFA
