Question

Lubriderm Corporation has budgeted the following unit sales for the next four months:

​Month​​​ Unit Sales

​

July​​​ 120,000

​August​ ​​210,000

​September​​ 150,000

​October​​ 180,000

​

Plans are to have an ending inventory of finished products that equals 20% of the unit sales for the next month. Five pounds of materials are required for each finished unit produced, and each pound of material costs $8. The desired ending inventory level for materials is equal to 30% of the materials needs for the next month’s production. The amounts of both finished goods and materials inventory on hand on July 1st are consistent with company policy as noted above.  

Required:

1) Create a data input area in your spreadsheet or in a separate tab which allows you to enter or compute the following amounts: 1) unit sales for the 4 month period by month; 2) desired ending finished goods inventory as a percentage of next month’s sales; 3) desired ending materials inventory as a percentage of next month’s production needs; 4) pounds of material required for each unit of finished product; 5) price per pound of material in dollars; 6) ending materials inventory (hint: assume October production is budgeted to be 168,000 units of finished product).

2) Prepare a production budget in units for July, August, and September.

3) Prepare a purchases budget in pounds for July, August, and September, and give total purchases in both pounds and dollars for each month.

Answer 1

2. Production Budget:

	July	August	September	Quarter	October
Budgeted Sales in Units	120,000	210,000	150,000	480,000	180,000
Add: Desired Ending Inventory ( 20% of next month unit sales)	42,000	30,000	36,000	36,000	24,000
Total Finished Goods Inventory Needs	162,000	240,000	186,000	516,000	204,000
Less: Estimated Beginning Inventory	24,000	42,000	30,000	24,000	36,000
Budgeted Production in Units	138,000	198,000	156,000	492,000	168,000

3. Purchases Budget:

	July	August	September	Quarter	October
Budgeted Production in Units	138,000	198,000	156,000	492,000	168,000
Quantity per Unit ( Pounds)	5	5	5	5	5
Direct Materials Needed in Production	690,000	990,000	780,000	2,460,000	840,000
Add: Desired Ending Inventory( 30 % of next month production needs)	297,000	234,000	252,000	252,000
Total Direct Materials Needed	987,000	1,224,000	1,032,000	2,712,000
Less: Estimated Beginning Inventory	207,000	297,000	234,000	207,000
Budgeted Direct Materials Purchases in Units	780,000	927,000	798,000	2,505,000
Cost per Unit	$ 8	$ 8	$ 8	$ 8
Budgeted Cost of Direct Materials Purchases	$ 6,240,000	$ 7,416,000	$ 6,384,000	$ 20,040,000