Question

Boxer Company plans to sell 500,000 units of finished product in July 20x1. Management (1) anticipates a growth rate in sales of 10% per month thereafter and (2) desires a monthly ending finished-goods inventory (in units) of 80% of the following month's estimated sales. There are 400,000 completed units in the June 30, 20x1 inventory.
Each unit of finished product requires four pounds of direct material at a cost of $1.90 per pound. There are 2,000,000 pounds of direct material in inventory on June 30, 20x1.

Required:
Prepare a production budget for the quarter ended September 30, 20x1. Note: For both part "A" and part "B" of this problem, prepare your budget on a quarterly (not monthly) basis. Independent of your answer to part "A," assume that Boxer plans to produce 1,280,000 units of finished product for the quarter ended September 30. If the firm desires to stock direct materials at the end of this period equal to 25% of current production usage, compute the cost of direct material purchases for the quarter.

Prepare a production budget for the quarter ended September 30, 20x1. Note: Prepare your budget on a quarterly (not monthly) basis.

	Total Quarterly sales Total units needed Total Quarterly production requirement

Independent of your answer to part "A," assume that Boxer plans to produce 1,280,000 units of finished product for the quarter ended September 30. If the firm desires to stock direct materials at the end of this period equal to 25% of current production usage, compute the cost of direct material purchases for the quarter.

	Material to be used in production Direct materials needed 0 Pounds to be purchased during the quarter 0 Direct materials cost per pound Total Quarterly cost of purchases $0

Answer 1

Question A

Production Budget

July to September

Particulars	Quarter 3
Budgeted Sales in Units	1,655,000
Add: Units in Ending Inventory of Finished Goods	532,400
Total Units Nedeed	2,187,400
Less: Units in Beginning Inventory of Finished Goods	(400,000)
Budgeted Production in Units	1,787,400

Budgeted Sales in Units = Sales for July + Sales for August + Sales for September

= 500,000 + 550,000 + 605,000

= 1,655,000 Units

Ending Inventory Sep 30 = 80% of October Sales in Units

= 80% of 665,500

= 532,400

Notes :-

Sales in Units for July = 500,000 Units

Sales in Units in August = Sales in Units for July * 110%

= 500,000 * 110%

= 550,000 Units

Sales in Units for September = Sales in Units for September = Sales in Units for August * 110%

= 550,000 * 110%

= 605,000

Sales in Units for October = Sales in Units for September * 110%

= 605,000 * 110%

= 665,500

Question B

Direct Materials Purchases Budget

July to September

Particulars	Amount
Budgeted Production in Units	1,787,400
* Materials Requirement per Unit in Pounds	4
Total Material Requirement	7,149,600
Add: Ending Inventory of Raw Materials	1,280,000
Total Raw Materials Needed	8,429,600
Less: Beginning Inventory of Raw Materials	(2,000,000)
Direct Material Purchases in Pounds	6,429,600

Particulars	Amount
Direct Materials Purchases in Pounds	6,429,600
* Cost per Pound	1.90
Cost of Direct Materials Purchases	12,216,240

Notes:

Ending inventory of Raw Materials in Pounds = 1,280,000 Units * 4 Pounds per Unit * 25%

= 5,120,000 * 25%

= 1,280,000 Pounds