Question

JC Floor Design makes ceramic tiles

December sales were:

500,000 units

Selling price $2 per unit

1,000,000 total sales

The Marketing Department, projects sales to:

increase by 5% in January     

February sales will be 15,000 units less than January

March sales will be 3% higher than February sales

April sales will be the 5,300 units less than march

The price is not expected to increase

JC inventory policy is to maintain an ending inventory equals to 30% of next month sales. Actual inventory is 168,000 units                         

                                                                                   

Clay the material to make the tiles cost $.50 per pound and each tile requires .6 pound. Actual clay inventory is 60,000 pounds and the inventory policy is to maintain an inventory equal to 25% of next month production requirement.

April production is expected to be 525,000 units. The cost of direct materials purchased in December was $150,000                                

                                                                                   

Each tile requires .10 hours and the labor hourly rate is $8.00 per hour       

Variable overhead rate is 20% of labor and fixed overhead is 25,000 monthly

Selling and administrative expenses are expected to be

Administrative salaries	$15,000 per month
Sales salaries	$12,000 per month
Sales commissions	10% of sales

70% of sales are cash sales and the remaining are collected in the next month

Material are paid 60% cash and the remaining the next month

                                               

The company has the following obligations:

100,000 in dividends will be paid in February

A new machine will be acquired in January with a cost of 250,000

A short-term loan with an outstanding balance of $150,000 is used to manage the cash position. Interest on the short-term loan are 1% monthly

Taxes of last quarter were $240,000 and will be paid in March. The company tax rate is 35%. and taxes are paid in the next quarter.

REQUIRED:

Compute the materials to be purchased in March

Answer 1

Given information

December sales in units = 500,000 units

Selling price per unit = $2 per unit

January sales in units = increased by 5% = 500,000 x 105% = 525,000 units

February sales in units = 15,000 units less than January = 525,000 - 15,000 = 510,000 units

March sales in units = 3% higher than February sales units = 510,000 x 103% = 525,300 units

April sales in units = 5,300 units less than March sales units = 525,300 - 5,300 = 520,000 units

Ending inventory of finished goods = 30% of next month's sales

Ending inventory of raw materials = 25% of next month production requirement.

1. Statement showing the production budget for January, February, March and April:

	January	February	March	April
a. Budgeted unit sales	525,000	510,000	525,300	520,000
b. Desired Ending Finished Good Inventory	153,000 (510,000 x 30%)	157,590 (525,300 x 30%)	156,000 (520,000 x 30%)	161,000
c. Total Needs (a + b)	678,000	667,590	681,300	681,000
d. Beginning Finished Good Inventory	168,000	153,000	157,590	156,000
e. Required Production in units (c - d)	510,000	514,590	523,710	525,000

2. Statement of Raw material Purchase Budget:

	January	February	March	April
a. Required Production in units	510,000	514,590	523,710	525,000
b. Raw material required to produce one unit (pounds)	0.60	0.60	0.60	0.60
c. Production needs (pounds) (a x b)	306,000	308,754	314,226	315,000
d. Desired Ending inventory of raw material (pounds)	77,189	78,557	78,750
	(308,754 x 25%)	(314,226 x 25%)	(315,000 x 25%)
e. Total needs (pounds) (c + d)	383,189	387,311	392,976
f. Beginning inventory of raw material (pounds)	60,000	77,189	78,557
g. Raw materials to be purchased (pounds) (e - f)	323,189	310,122	314,420
h. Cost of raw materials per pound ($)	$0.50	$0.50	$0.50
i. Cost of raw materials to be purchased ($) (g x h)	$161,594	$155,061	$157,210

Computation of the materials to be purchased in March:

Materials to be purchased in March (in pounds) = 314,420 pounds (See statement 2g above)

Materials to be purchased in March (in dollar) = 314,420 x $0.50 = $157,210