Question

Croy Inc. has the following projected sales for the next five months:   

Month	Sales in Units
April	3,500
May	3,945
June	4,640
July	4,110
August	3,920

Croy’s finished goods inventory policy is to have 60 percent of the next month’s sales on hand at the end of each month. Direct material costs $3.40 per pound, and each unit requires 2 pounds. Raw materials inventory policy is to have 50 percent of the next month’s production needs on hand at the end of each month. Raw materials on hand at March 31 totaled 3,767 pounds.     

Required:

1. Determine budgeted production for April, May, and June. (Do not round your intermediate calculations and round your final answer to the nearest whole number.)

2. Determine the budgeted cost of materials purchased for April, May, and June. (Use rounded Budgeted Production units in intermediate calculations. Round your answers to 2 decimal places.)

Answer 1

1. Determination of budgeted production :

	April	May	June	July	August
budgeted sales units	3,500	3,945	4,640	4,110	3,920
(+) Desired ending inventory of finished goods [ 60% of next month's sales ]	2,367	2,784	2,466	2,352
Total units of finished goods required	5,867	6,729	7,106	6,462
(-) Opening inventory of finished goods	( 2,100 )	( 2,367 )	( 2,784 )	( 2,466 )
Units to be produced i.e. budgeted production	3,767	4,362	4,322	3,996

Notes : 1) July and August month's columns are also prepared as their calculation will be required in the further calculation

2) Ending inventory on March would have been 2,100 units ( i.e. 60% of the April's sales ). Ending inventory of March will become the opening inventory in April. Hence April's opening inventory is taken to be 2,100 units. Further, ending inventory of April, May and June month is taken to be the opening inventory of May, June and July month respectively.

	April	May	June	July
Units to be produced	3,767	4,362	4,322	3,996
(x) Direct material required per unit ( pounds )	2	2	2	2
Total production needs ( pounds )	7,534	8,724	8,644	7,992
(+) Desired ending inventory of direct materials ( pounds ) [ 50% of the next month's production needs ]	4,362	4,322	3,996
Total direct materials required ( pounds )	11,896	13,046	12,640
(-) Opening inventory of direct materials ( pounds )	( 3,767 )	( 4,362 )	( 4,322 )
Direct materials to be purchased ( pounds )	8,129	8,684	8,318
(x) Direct material rate per pound	$3.40	$3.40	$3.40
Cost of direct materials to be purchased	$27,638.6	$29,525.6	$28,281.2

Notes : 1) Opening inventory of direct materials for April will be the ending inventory of March which is given in the question to be 3,767 pounds. Further, ending inventory of April and May month is taken to be the opening inventory of May and June month respectively.