Question

Exercise 21-6 (Part Level Submission)

On January 1, 2017, the Hardin Company budget committee has reached agreement on the following data for the 6 months ending June 30, 2017.

Sales units:		First quarter 5,000; second quarter 6,900; third quarter 7,300
Ending raw materials inventory:		40% of the next quarter’s production requirements
Ending finished goods inventory:		25% of the next quarter’s expected sales units
Third-quarter production:		7,360 units.

The ending raw materials and finished goods inventories at December 31, 2016, follow the same percentage relationships to production and sales that occur in 2017. 3 pounds of raw materials are required to make each unit of finished goods. Raw materials purchased are expected to cost $6 per pound.

A. Prepare a production budget by quarters for the 6-month period ended June 30, 2017.

B.Prepare a production budget by quarters for the 6-month period ended June 30, 2017.

Answer 1

a) Production Budget for 6 month :-

Particulars	First Qtr.	Second Qtr.	Six Months
Sales in Units	5000	6900	11900
Add : Desired ending Finished Goods Inventory	1725	1825	3550
	(6900*25%)	(7300*25%)
Total Units Required	6725	8725	15450
Less : Beginning Finished Goods Inventory	(1250)	(1725)	(2975)
	(5000*25%)
Total Units Required to be Produced	5475	7000	12475

b) Direct Material Budget :-

Particulars	First Qtr.	Second Qtr.	6 Months
Units to be Producd (a)	5475	7000	12475
Direct Material per unit (in pound) (b)	3	3	3
Total Pounds Required for production (a*b)	16425	21000	37425
Add : Desired Ending Inventory	8400	8832	17232
	(21000*40%)	(7360*3*40%)
Total Materials Required	24825	29832	54657
Less : Beginning Inventory of Materials	6570	8400	14970
	(16425*40%)
Total Direct Material to be Purchased (in Pound) (c)	18255	21432	39687
Cost Per Pound (d)	$6	$6	$6
Total Cost of Direct Material Purchases	$109530	$128592	$238122