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In: Accounting

A sales budget is given below for one of the products manufactured by the Key Co.:...

A sales budget is given below for one of the products manufactured by the Key Co.:

January 21,000 units
February 36,000 units
March 61,000 units
April 41,000 units
May 31,000 units
June 25,000 units

The inventory of finished goods at the end of each month should equal 20% of the next month's sales. However, on December 31 the finished goods inventory totaled only 4,000 units. Each unit of product requires three specialized electrical switches. Since the production of these specialized switches by Key's suppliers is sometimes irregular, the company has a policy of maintaining an ending inventory at the end of each month equal to 30% of the next month's production needs. This requirement had been met on January 1 of the current year.

Required:

a. Prepare a budget showing the required production each month for January, February, March, and April.

b. Prepare a budget showing the quantity of switches to be purchased each month for January, February, and March.

Solutions

Expert Solution

a) Production budget

January February March April
Sales unit 21000 36000 61000 41000
Add: Desired ending inventory 7200 12200 8200 6200
Total 28200 48200 69200 47200
Less: Beginning inventory -4000 -7200 -12200 -8200
Production unit 24200 41000 57000 39000

b) Material purchase budget

January February March
Production unit 24200 41000 57000
Raw material per unit 3 3 3
Raw material needed for production 72600 123000 171000
Add: Desired ending inventory 36900 51300 35100
Total 109500 174300 206100
Less: Beginning inventory -21780 -36900 -51300
Raw material purchase 87720 137400 154800

ekkarill92 answered 2 years ago
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