Question

1. Carol's budget for the coming year estimates monthly sales in units for the first five months of the year as follows: April, 3K; May, 38K; June 40K; July, 39K; and August, 38K.

The ending inventory of finished units available for sale is to be maintained at 25% of the next month's estimated sales. On April 1, there were 12,000 units on hand. There is no work in process at the end of any month. Each unit of finished product requires the use of five units of materials. Materials are to be carried in inventory in an amount equal to one-third of the expected production of the coming month. Beginning inventory on April 1 of the current year was 54,167 units of material.

a.    Prepare a production budget (in units) for the first four months of the period.  

b.    Prepare a materials purchases budget (in units of materials) for the second quarter of the coming year.

Answer 1

a.
	April	May	June	July
Budgeted sales in units	3000	38000	40000	39000
(+) Desired ending inventory ( 25% * Next month's budgeted sales )	9500	10000	9750	9500
Total units needed	12500	48000	49750	48500
(-) Beginning inventory	12000	9500	10000	9750
Units of finished goods to be produced	500	38500	39750	38750

b.
	April	May	June
Units of finished goods to be produced	500	38500	39750
(*) Units of materials required per unit of finished goods	5	5	5
Units of materials needed for production	2500	192500	198750
(+) Desired ending inventory [ 1/3 * Next month's production requirement ]	64167	66250	64583
Total units of materials needed	66667	258750	263333
(-) Beginning inventory of direct materials	54167	64167	66250
Unit of materials to be purchased	12500	194583	197083