Question

Donna’s Fashions Corporation has the following sales forecast in units:

January 1,000; February 800; March 900; April 1,400; May 1,550; June 1,800; July 1,400

Donna always keeps ending inventory equal to 120 percent of the next month’s expected sales. The ending inventory for December (January’s beginning inventory) is 1,200 units, consistent with company policy.

Materials cost $14 per unit and are paid for in the month after production. Labour cost is $7 per unit and is paid in same month the cost is incurred. Overhead costs are $8,000 per month. Interest of $10,000 will be paid in March, and employee bonuses of $15,500 paid in June. Enter all values as positive value.

a. Prepare a monthly production schedule for January through June.

Donna’s Fashions Production Schedule
	January	February	March	April	May	June	July
Forecasted unit sales
Desired ending inventory
Beginning inventory
Units to be produced

b. Prepare a monthly summary of cash payments for January through June. Donna produced 800 units in December.

Donna’s Fashions Summary of Cash payments
	December	January	February	March	April	May	June
Units produced
Material cost		$	$	$	$	$	$
Labour cost
Overhead cost
Interest
Employee bonuses
Total cash payments		$	$	$	$	$	$

Answer 1

Given:

Month	Jan	Feb	Mar	Apr	May	Jun	Jul
Sales Forecast ( In Units )	1000	800	900	1400	1550	1800	1400

2. Raw material cost = $ 14 / unit , Kindly note that this cost is to be paid in the following month

3. Labour cost = $ 7 / unit which is to be paid in the same month

4. Overhead cost = $ 8000 / Month

5. Interest = $ 10000 which should only be paid in the month of March

6. Employee Bonus = $ 15500 which should only be paid in the month of June

7. December Ending inventory = January Beginning = 1200 Units

Solution:

a. Donna's Fashion Production schedule:

	January	February	March	April	May	June	July
Forecasted unit sales	1000	800	900	1400	1550	1800	1400
Desired ending inventory	960	1080	1680	1860	2160	1680	-
Beginning inventory	1200	960	1080	1680	1860	2160	1680
Units to be produced	760	920	1500	1580	1850	1320	-

• Forecasted unit sales values can be filled directly as it has been given already in the question
• For filling the Desired ending inventory row, you need use the below formula

Jan Ending inventory = 120% of February Forecasted unit Sales

i.e; Jan Ending Inventory = 1.2 * 800 = 960

Similarly calculate and fill up for the other months

• For filling the Beginning inventory row, use the below logic

Beginning inventory of Jan = Ending inventory of Dec which is 1200 units (Already given in the question)

Lets see for the month of February

Beginning inventory of Feb = Ending inventory of Jan = 960 units

Similarly fill up for the all the other months

• For calculating the Units to be produced value, use the below formula

Units to be produced = Ending inventory - ( Beginning inventory - Forecasted unit sales )

i.e; Units to be produced in Jan = Ending inventory of Jan - ( Beginning inventory of Jan - Forecasted unit sales in Jan )

= 960 - (1200 -1000 )

= 960 - (200)

= 760 Units

Similarly calculate for all the respective months.

Coming to part b.

b. Donna's Fashions Summary of Cash payments

	December	January	February	March	April	May	June
Units Produced	800	760	920	1500	1580	1850	1320
Material cost	-	$11200	$10640	$12880	$21000	$22120	$25900
Labour cost	$5600	$5320	$6440	$10500	$11060	$12950	$9240
Overhead cost	$8000	$8000	$8000	$8000	$8000	$8000	$8000
Interest				$10000
Employee Bonuses							$15500
Total cash payments		$24520	$25080	$41380	$40060	$43070	$58640

• We have already calculated values for Units produced in the previous part ( a )
• As the payments for the raw materials are made in the following month of production, the values are calculated as below

i.e; Raw material cost for 800 units produced in the month of Dec will be paid in Jan which will be 800*$14 = $11200

Similarly it is calculated for all the other months

• Labour cost per unit is $ 7, Labour cost for the month is calculated by

Units produced in the month * $ 7

i.e; For Jan, Labour cost = 760*$7 = $ 5320

Similarly calculated for respective months

• Overhead cost is $ 8000 which is paid every month
• Interest of $10000 is to be paid only in the month of March
• Employee Bonus of $ 15500 is to be paid only in the month of June

Totaling up all the rows, we get the total cash payments for the respective months as mentioned in the above table.

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