Question

1.) Morse company has a sales budge of 75,000 units in July, 85,000 units in August and 70,000 units in September. Morse requires ending finished goods inventories equal to 40 percent of the following months sales. How many units should be budgeted for production in August? Assume that the beginning finished goods inventory in August was equal to the budgeted level.

2.)David Enterprise manufactures a product that requires three gallons of chemical XU-20 per unit. The cost of XU-20 is $30.00 per gallon. Davis maintains an ending inventory of XU-20 equal to 70 percent of the following month's production usage. Planned production for Davis is as follows: 6,000 units in June, 5,500 units in July and 7,200 units in August. What would be the cost of XU-20 budgeted to be purchased in July? Assume that beginning inventory of XU-20 in July was equal to the budgeted level.

3.)Rocky's Industrial Tool supply Company forecasts the following Total sales figures for the next 4 months. April $300,000- May $360,000- June $400,000- July $420,000. Cash sales average 30 percent of total sales and credit sales represent 70 percent of total sales. Credit sales are collected 80 percent in the months following sale and 20 percent two months following sale. The total estimated cash received in July would be:

Answer 1

Answer :

(1) How many units should be budgeted for production in August

Month Sales Budget Ending Finished Goods Inventory   Assume Beginning FG Inventory in -

     (40% of the following months Sales) - August was equal to Budgeted Level i.e Budgeted level of Sales

July 75,000 units 34,000 units ( 85,000*40%)

August 85,000 Units 28,000 units ( 70,000*40%) 85,000 Units

September 70,000 Units

Calculation of how many units should be budgeted for production in August

Budgeted for Production in August = Beginning FG Inventory + Ending Finished Goods Inventory

=    85,000 Units + 28,000 units

Budgeted for Production in August      = 1,13,000 Units

(2) Calculation of cost of XU-20 budgeted to be purchased in July ;

Month Planned    No of Gallons of Maintains an ending inventory of XU-20 Assume the Beginning -

Production Chemical XU-20- ( 70 % of the following month's - Inventory of XU-20 production usage ) budgeted to be Purchased for total units   in July (in terms of   Gallons)   

June 6,000 units 18,000 gallons    11,550 gallons (16,500*70%)

July 5,500 units 16,500 gallons 15,120 gallons (21,600* 70%) 16,500 gallons (Given)

August 7,200 Units   21,600 gallons

Calculation of the cost of XU-20 budgeted to be purchased in July :

Cost of XU-20 budgeted to be purchased in July

  = ( Beginning Inventory budgeted to be purchased + Ending Inventory XU-20 ) * cost of XU-20 per gallon

  = ( 16,500 gallons + 15,120 gallons ) * $30 per gallon

= 31,620 * $30

   = $ 948,600

Cost of XU-20 budgeted to be purchased in July =   $ 948,600

(3) Calculation of  total estimated cash received in July :

Rocky's Industrial Tool supply Company forecasts

Month      Total Sales     Cash Sales Credit Sales    Credit Sales are collected   Credit Sales are collected

( 80 % in the months- (20% 2 months following

- Following sale ) Sale)

April $300,000    $ 90,000   $210,000   

May $360,000 $ 108,000   $ 252,000 $168,000 (210,000*80%)

June $400,000 $ 120,000   $280,000 $201,600 (252,000*80%) 42,000 (210,000*20%)

July $420,000   $126,000 $ 294,000 $ 224,000 ( 280,000*80%) 201,600 (252,000*20%)

Total estimated cash received in July =   $ 224,000 + $201,600

Total estimated cash received in July  = $425,600

THANK YOU!