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chapter 7 lecture notes

Quarter 2 quarter 3 quarter 4 total buildit sales

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Unformatted text preview:   Budgeting revenue is the foundational step in every budget •  Customer / region / product forecasts •  Local knowledge •  Macro trends •  Market research Preparing a Master Budget – Step 1 - Revenue Requires Sales and Marketing managers to coordinate Get into questions of adding or dropping products CVP analysis Break even analysis Preparing a Master Budget – Step 1 - Revenue Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total BuildIT Sales in lots 1,500 1,500 2,000 3,000 8,000 Price per lot Revenue $2,900 $2,900 $2,900 $2,900 $2,900 $4,350,000 $4,350,000 $5,800,000 $8,700,000 $23,200,000 BuildIT- PLUS Sales in lots 400 400 500 700 2,000 Price per lot Revenue $4,800 $4,800 $4,800 $4,800 $4,800 $1,920,000 $1,920,000 $2,400,000 $3,360,000 $9,600,000 Total revenue $6,270,000 $6,270,000 $8,200,000 $12,060,000 $32,800,000 Preparing a Master Budget – Step 2 - Production Once we know how many items we expect to sell, we need to translate that information into how many units do we need to make (produce) Production budget combines the demand info from the revenue budget and the company’s inventory policy regarding finished goods to determine production levels for the coming year Requires Marketing and Production managers to coordinate. Get into questions of capacity and warehousing costs Preparing a Master Budget – Step 2 - Production Inventory equation helps us determine the # of units to produce Applying inventory equation to sales targets determines the production plan BI (what we had) PLUS P (what we put in) LESS S (what we took out) EQUALS EI (what is left) Preparing a Master Budget – Amarillo Toys – Production Info Current year expect ending inventory to be: BuildIT – 75 lots This will be BI for the budget BuildIT-PLUS – 15 lots End of each quarter the target finished goods inventory is to equal 10% of the next quarter’s sales volume Based on tentative sales projections 5 quarters out, plan to end the year with 90 lots of BuildIT and 20 lots of BuildIT-PLUS in inventory Preparing a Master Budget – S...
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