Question

Franklin Products Limited manufactures and distributes a number of products to retailers. One of these products, SuperStick, requires five kilograms of material D236 in the manufacture of each unit. The company is now planning raw materials needs for the third quarter—July, August, and September. Peak sales of SuperStick occur in the third quarter of each year. To keep production and shipments moving smoothly, the company has the following inventory requirements:

1. The finished goods inventory on hand at the end of each month must be equal to 8,650 units plus 20% of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 22,780 units.
2. The raw materials inventory on hand at the end of each month must be equal to 40% of the following month’s production needs for raw materials. The raw materials inventory on June 30 for material D236 is budgeted to be 131,600 kilograms.
3. The company maintains no work in process inventories.

A sales budget for SuperStick for the last six months of the year follows:

	Budgeted Sales in Units
July	61,300
August	75,650
September	106,300
October	53,650
November	30,650
December	15,260

Required:
1. Prepare a production budget for SuperStick for July, August, September, and October.

2. Not available in Connect.

3. Prepare a direct materials purchases budget showing the quantity of material D236 to be purchased for July, August, and September and for the quarter in total.

Answer 1

Solution 1:

Production Budget
Particulars	July	August	September	October
Budgeted unit sales	61300	75650	106300	53650
Add: Required ending Inventory (8650 +20% of Following month Sale)	23780	29910	19380	14780
Total Needs	85080	105560	125680	68430
Less: Opening Inventory	22780	23780	29910	19380
Required Production in units	62300	81780	95770	49050

Solution 3:

Direct Materials Budget
Particulars	July	August	September	Quarter
Required Production in Units	62300	81780	95770	239850
Material D236 needed per unit (Kgs)	5	5	5	5
Production Needs (Kgs)	311500	408900	478850	1199250
Add: Required ending Inventory (40% of Following month Production Needs)	163560	191540	98100	98100
Total Material D236 needs	475060	600440	576950	1297350
Less: Opening Inventory of Gilden	131600	163560	191540	131600
Raw Materials to be Purchased	343460	436880	385410	1165750