Chicago Furniture Company produces combination desk and chair sets for the elementary schools in the Midwest. As the second quarter is progressing it is important for the controller to complete a budget for the third quarter. The sales department manager has provided the following forecast.

July8,000 desk combosAugust8,700 desk combosSeptember

7,600 desk combos

October8,700 desk combosNovember8,800 desk combos

• In order to ensure Just-in-Time (JIT) deliveries are maintained in accordance with the needs of the schools Chicago Furniture Company has a standing policy that the inventory at the end of each month must be equal to 40% of the following month’s forecasted sales. On July 1st there will be 3,200 desk combos in inventory.
• The building of each desk combo requires 12 board feet of pine planks which cost $0.70 per foot. In order to maintain proper inventory for building the desk combos the department must have 30% of the next month’s production requirements.

Using the information you developed in Submission Lesson #1, write 3-4 pages discussing the following:

• Why is the preparation of a sales forecast one of the earliest steps in preparing a master budget?
• Explain at least three ways a company can benefit from preparing a formal budget