Question

XYZ Company provides you with the following data projected for 2018:

Projected sales are 30,000 units. Inventory at Dec 31,2017 was 4,000 manufactured units. The desired ending for Dec 31, 2018 is 8,000 manufactured units.

a) - Provide a production budget for the number of units that need to be produced.

b) - Assume for each unit manufactured, four pounds of raw materials are needed. Assume the desired ending inventory became 10,000 manufactured units. What effect would that have on the amount of materials to be purchased and by how much?

Answer 1

Answers

• Requirement ‘a’

Production Budget

A	Projected budgeted sales	30,000
B	Desired ending inventory 31 dec 2018	8,000
C = A + B	Total needs	38,000
D	Beginning Inventory 31 Dec 2017	4,000
E = C - D	Units to be produced	34,000

• Requirement ‘b’

-If units produced are 34,000 units, the amount of material purchased would be 34000 x 4 pounds = 136,000 pounds.

-If desired inventory becomes 10,000 units:

A	Projected budgeted sales	30,000
B	Desired ending inventory 31 dec 2018	10,000
C = A + B	Total needs	40,000
D	Beginning Inventory 31 Dec 2017	4,000
E = C - D	Units to be produced	36,000
F	Raw material per unit	4
G = E x F	Amount of raw material purchased	144,000

Hence, if desired inventory becomes 10,000, 144,000 pounds of materials would be purchased.

Hence, 8000 pounds of extra material is to be purchased.