Question

Franklin Products Limited manufactures and distributes a number of products to retailers. One of these products, SuperStick, requires five kilograms of material D236 in the manufacture of each unit. The company is now planning raw materials needs for the third quarter—July, August, and September. Peak sales of SuperStick occur in the third quarter of each year. To keep production and shipments moving smoothly, the company has the following inventory requirements:

1. The finished goods inventory on hand at the end of each month must be equal to 8,700 units plus 20% of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 22,840 units.
2. The raw materials inventory on hand at the end of each month must be equal to 40% of the following month’s production needs for raw materials. The raw materials inventory on June 30 for material D236 is budgeted to be 131,800 kilograms.
3. The company maintains no work in process inventories.

A sales budget for SuperStick for the last six months of the year follows:

	Budgeted Sales in Units
July	61,400
August	75,700
September	106,400
October	53,700
November	30,700
December	15,280

Required:
1. Prepare a production budget for SuperStick for July, August, September, and October.

2. Prepare a direct materials purchases budget showing the quantity of material D236 to be purchased for July, August, and September and for the quarter in total.

Answer 1

Answer-1)-

FRANKLIN PRODUCTS LIMITED
Production Budget
Particulars	JULY	AUGUST	SEPTEMBER	OCTOBER	Totals
Budgeted unit sales (a)	61400	75700	106400	53700	297200
Add:- Desired ending finished goods inventory (b)	8700 units+(75700 units*20%) =23840 units	8700 units+(106400 units*20%) =29980 units	8700 units+(53700 units*20%) = 19440 units	8700 units+(30700 units*20%) =14840 units	88100
8700 units+20% of the next month's sales needs
Less:-Opening finished goods inventory (c)	22840	23840	29980	19440	96100
Number of units to be produced (d=a+b-c)	62400	81840	95860	49100	289200

2)-

FRANKLIN PRODUCTS LIMITED
Direct Material Purchase Budget
Particluars	JULY	AUGUST	SEPTEMBER	QUARTER
Production units (a)	62400	81840	95860	240100
Kilograms required each unit of raw material (b)	5 Kg.	5 Kg.	5 Kg.	5 Kg.
Total kilograms of raw materials required	312000	409200	479300	1200500
Add:- Closing Inventory 40% of next month production units (kg)	409200 kg*40%= 163680 kg.	479300 kg*40%= 191720 kg.	245500 kg.*40%= 98200 kg.	453600
Less:- Opening Inventory (kg)	131800 kg.	163680 kg.	191720 kg.	487200
Direct material purchase (in kg.)	343880	437240	385780	1166900