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Information for Question: The ExpressEspresso Company roasts and sells high quality certified sustainable coffee beans. The...

Information for Question: The ExpressEspresso Company roasts and sells high quality certified sustainable coffee beans. The final one pound bags of roasted whole coffee beans has two direct materials – coffee beans and packaging. ExpressEspresso is preparing budgets for the 4th quarter ending December 31, 2019. For each requirement below prepare budgets by month for October, November, and December, and a total budget for the quarter.

The previous year’s sales for the corresponding period were:

October 50,000 bags

November 55,000 bags

December 90,000 bags

January 75,000 bags

February 60,000 bags

The company expects the above volume of coffee sales to increase by 8% for the period October 2019 – February 2020. The budgeted selling price for 2019 is $19.50 per bag. The company expects 35% of its sales to be cash (COD) sales. The remaining 65% of sales will be made on credit.

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Question: The company desires to have finished goods inventory on hand at the end of each month equal to 10 percent of the following month's budgeted unit sales. On September 30, 2019, ExpressEspresso expects to have 5,350 bags of roasted coffee on hand.

Prepare a Production budget

Solutions

Expert Solution

Answer:-

Month 2018-19(units) 2019-20(units)
OCTOBER 50,000 54,000
NOVEMBER 55,000 59,400
DECEMBER 90,000 97,200
JANUARY 75,000 81,000
FEBRUARY 60,000 64,800

# 8% increase.

Ascertaining stock on hand at the end of October,november and December.

Closing stock each month = 10% of subsequent month sales.

Month sales Closing stock
OCTOBER 54,000 5,940 ( 10% of 59,400)
NOVEMBER 59,400 9,720 (10% of 97,200)
DECEMBER 97,200 8,100 (10% of 81,000)

Production budget for the quarter ending 31 December 2019 monthly wise i.e October,November, December.

Particulars October November December
Forecasted unit sales 54,000 59,400 97,200
+ Planned ending inventory 5940 9720 8100
= Total production required 59,940 69,120 105,300
- Beginning inventory (5350)* (5940) (9720)
= Units to be manufactured 54,590 63,180 95,580

# Closing stock of a month is equal to opening stock of succeeding month.

* Given in the question itself.

ekkarill92 answered 2 months ago
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