Question

In: Accounting

Cherboneau Novelties produces drink coasters (among many other products). During the current year (year 0), the company sold 520,000 units (packages of 6 coasters).

Cherboneau Novelties produces drink coasters (among many other products). During the current year (year 0), the company sold 520,000 units (packages of 6 coasters). In the coming year (year 1), the company expects to sell 540,000 units, and, in year 2, it expects to sell 624,000 units. The target ending finished goods inventory for each month is equal to the next month's sales. However, because of production issues, the ending inventory in the current year is expected to be only 12,000 units.

 

Each unit requires 0.5 pounds of cork. At the end of the current year, management expects to have 18,750 pounds of cork in inventory. Management has set a target to have cork on hand equal to one-half of next month’s sales requirements. Sales and production take place evenly throughout the year.

 

Required:

a. Compute the total targeted production of the finished coaster for the coming year.

b. Compute the required amount of cork to be purchased for the coming year.

 

Solutions

Expert Solution

a..Year 0 1 2    
Sales/Sales expected(Pkg.of 6 coasters) 520000 540000 624000    
Add: Desired ending inventory at end of yr. 12000 52000   624000/12 mths.=52000
Total pakages needed   592000      
Less: Beginning inventory   -12000      
Targeted production    580000 ie. 580000 pkgs.*6= 3480000 coasters
           
           
b.Purchase budget  0 1 2    
Targeted prodn.(units)   580000      
Cork reqd./unit(Pds.)   0.5      
Total pds. Of cork reqd.   290000      
Add: Ending pds.needed   -13000   52000*0.5/2=13000 corks
Total pds. Needed   277000      
Less: Beginning inventory   -18750      
Purchases needed   258250      

Junaid answered 1 year ago
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