Question

Please Show calculations and work

Company has budgeted the following unit sales:

                           2019                                     Units  

                        January                                      10,000

                        February                                      8,000

                        March                                         9,000

                        April                                          11,000

                        May                                          15,000

The finished goods units on hand on December 31, 2018, was 2,000 units. Each unit requires 2 pounds of raw materials that are estimated to cost an average of $4 per pound. It is the company's policy to maintain a finished goods inventory at the end of each month equal to 20% of next month's anticipated sales. They also have a policy of maintaining a raw materials inventory at the end of each month equal to 30% of the pounds needed for the following month's production. There were 5,760 pounds of raw materials on hand at December 31, 2018.

1. Prepare a production budget for January and February.

2. Prepare a direct materials budget for January and February

Answer 1

Answer- a)-

Production Budget
For the Months of January & February
Particulars	January	February
Unit sales (a)	10000	8000
Add:- Desired ending finished goods inventory (b)	8000*20%=1600	9000*20%=1800
20% of the next month's sales needs
Less:-Opening finished goods inventory (c)	10000*20%=2000	1600
Number of units to be produced (d=a+b-c)	9600	8200

2)-

Direct Material Budget
For the Months of January & February
Particluars	January	February
Budgeted production in units (a)	9600	8200
Pounds of Raw material required per unit (b)	2 pounds	2 pounds
Raw material required for production pounds (c=a*b)	19200	16400
Add:- Desired ending inventory (pounds)	16400 pounds*30% =4920	18800 pounds*30%=5640
30% of next month production needs
Less:= Opening inventory (lbs)	5760	4920
Budgeted Raw material purchase (pounds) (d)	18360	17120
Raw material cost per pound (e)	$4	$4
Direct material budget (f=d*e) $	73440	68480

Explanation-

Production Budget
For the Months of January to March
Particulars	January	February	March
Unit sales (a)	10000	8000	9000
Add:- Desired ending finished goods inventory (b)	8000*20%=1600	9000*20%=1800	11000*20%=2200
20% of the next month's sales needs
Less:-Opening finished goods inventory (c)	10000*20%=2000	1600	1800
Number of units to be produced (d=a+b-c)	9600	8200	9400