ACC 6140 –– Patio Pillows Company

ACC 6140 –– Patio Pillows Company

Background:

Patio Pillows Company, located in Nevada, makes decorative pillows for outdoor furniture. Outdoor

furniture is very popular in Nevada and the company sells their pillows at home decorating stores and

other stores such as Lowe’s. The company sells the pillows to their retailers for $14 per pillow. Each

pillow requires the following:

1.25 yards of fabric at a cost to Patio Pillows of $6 per yard.

Each month, the company has a goal to maintain ending stock of fabric equal to 10% of the next month’s

production requirements. The company also has a goal to have finished pillow ending stock equal to

20% of the anticipated next month’s sales.

Data:

Sales in units are projected to be as noted for the first three months of the year: (the amounts go up as

demand towards Spring/Summer increases):

Month Projected pillow

sales in units

January 100,000

February 110,000

March 115,000

Case Study Requirements:

Prepare the following budget for Patio Pillows Company for each of the three months along with a 1 st

quarter summary column: Use the excel spreadsheet attached and include your calculations embedded

in the cells:

1. Prepare the sales budget including a separate section below which details the type of sales that

are anticipated to be made. For this section, assume that 10% of the company’s pillows are cash

sales, while the remaining 90% will represent credit card sales.

2. Prepare a production budget for the pillows. Assume that Patio Pillows projects pillow sales in

April of 120,000 units.

3. Prepare the direct materials purchases budget. Note that Patio Pillows assumes that the

company will require at least 150,000 yards of fabric to meet April’s production.

Once you have completed these budgets, respond to the following:

When setting up the budgeting process, we need to have a clear understanding of certain decisions to

be made by Patio Pillows. For each question, provide a minimum of 1 page response. Discuss the

following:

A. What are budgets used for and what should be the driving force behind Patio Pillows in the

budgeting process?

B. Who in the company (identify positions only) should be involved in the budgeting process?

Based on the positions, what responsibilities do each of these individuals have?

C. What are the advantages and disadvantages to creating a budget at the beginning of each fiscal

year?

D. Besides these budgets calculated, what other budgets should be included in a manufacturer’s

master budget?

See “Case Study Requirements” in the Course Room for detailed information and Templates.

Due in Week 5 of the course term.