Budgeting for Cabot Co. Sales and Production in July
How can we prepare budgets for sales, production, materials purchases, labor costs, and cost of goods sold for Cabot Co. in July?
Let's break down the process step by step for each budget category.
Sales Budget:
To create the sales budget for Cabot Co. in July, we need to calculate the estimated sales for each product. For Product K, multiply 40,000 units by $30 per unit. For Product Li, multiply 20,000 units by $65 per unit. The total estimated sales for both products in July would be $2,500,000.
Production Budget:
Since there are no work in process inventories for July, we can move on to preparing the production budget. This budget will differ for each product based on their direct materials and labor requirements.
Direct Materials Purchases Budget:
Determine the direct materials cost per unit for each product. Multiply the required materials by their unit costs and then by the estimated sales units. This will give you the total direct materials purchases budget.
Direct Labor Cost Budget:
Similar to the materials budget, calculate the labor requirements for each product and their associated costs. This budget will show how much you should expect to pay for labor in production.
Cost of Goods Sold Budget:
Add the total from the materials purchases budget, the total from the direct labor cost budget, and the estimated factory overhead costs to get the total cost of goods sold budget for Cabot Co. in July.
After calculating individual budgets such as the sales budget, production budget, direct materials purchases budget, direct labor cost budget, and cost of goods sold budget, we can get an overall view of the planned sales and production activities and related costs for Cabot Co. in July.
The task at hand is related to business management, focusing on cost and sales budgeting specifically for Cabot Co. Understanding budgeting is essential for planning activities, making informed decisions, and measuring performances.
By following the steps outlined for each budget category, the company can have a clear picture of their financial plans and resources allocation for the month of July.