The budgeted selling price per unit is $60. Budgeted unit sales for June, July, August, and...

The budgeted selling price per unit is $60. Budgeted unit sales for June, July, August, and September are 8,900, 20,000, 22,000, and 23,000 units, respectively. All sales are on credit.
Forty percent of credit sales are collected in the month of the sale and 60% in the following month.
The ending finished goods inventory equals 20% of the following month’s unit sales.
The ending raw materials inventory equals 10% of the following month’s raw materials production needs. Each unit of finished goods requires 5 pounds of raw materials. The raw materials cost $2.50 per pound.
Thirty percent of raw materials purchases are paid for in the month of purchase and 70% in the following month.
The direct labor wage rate is $13 per hour. Each unit of finished goods requires two direct labor-hours.
The variable selling and administrative expense per unit sold is $1.50. The fixed selling and administrative expense per month is $70,000.

If 111,000 pounds of raw materials are needed to meet production in August, how many pounds of raw materials should be purchased in July?

Expert Solution

Solution:

We need to prepare the Raw Materials Purchase Budget for July

	June	July	August	Sept
Unit Sales	8900	20000	22000	23000
Plus: Ending Finished Goods Inventory (20% of following months sales unit)	4000	4400	4600
Total Needs	12900	24400	26600
Less: Beginning Inventory of Finished Goods (Ending Inventory of Previous Months)	1780	4000	4400
Budgeted Production (Units)	11120	20400	22200
Required raw materials in pounds per finished goods unit	5	5	5
Total Needs for Production in pounds	55600	102000	111000
Plus: Desired Ending Inventory (10% of following months requirement)	10200	11100
Total Needs	65800	113100
Less: Estimated Beginning Inventory of Raw Material (Ending Inventory of Previous Months)	5560	10200
Required Raw materials purchased in pounds	60240	102900

Pounds of Raw Materials should be purchased in July = 102,900 Pounds

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ekkarill92 answered 2 years ago

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