A sales budget is given below for one of the products manufactured by the Quick Production...

A sales budget is given below for one of the products manufactured by the Quick Production Limited:

July

25,000

units

August

40,000

units

September

65,000

units

October

45,000

units

November

35,000

units

December

30,000

units

The inventory of finished goods at the end of each month must equal 20% of the next month's sales. However, on June 30 the finished goods inventory totalled only 4,000 units.

Each unit of product requires three pounds of specialized material. Since the production of this specialized material by Quick'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 July 1 of the current year.

Required:

Prepare a budget showing the quantity of material to be purchased each month for July, August and September and in total for the quarter. (3 marks for July, 3 marks for August, 3 marks for September and 1 mark for total)

Solutions

Expert Solution

Budgeted production for July, August and September
	July	August	September	October
Sales (In units)	25000	40000	65000	45000
Less: Beginning Finished goods	4000	8000	13000	9000
	(given)	(40000X20%)	(65000X20%)	(45000X20%)
Balance Units required for sale	21000	32000	52000	36000
Add: Required Ending Finished goods	8000	13000	9000	7000
	(40000X20%)	(65000X20%)	(45000X20%)	(35000X20%)
Budgeted production (Units)	29,000	45,000	61,000	43,000

Direct materials Budget
For the Months of July, August and September
	July	August	September	Total
Units to be produced	29,000	45,000	61,000	1,35,000
Multiply by: Quantity of direct materials needed per unit	3	3	3	3
Quantity needed for production	87,000	1,35,000	1,83,000	405000
Plus: Desired ending inventory of direct materials	40,500	54,900	38,700	38,700
	(135,000 X30%)	(183,000X30%)	(43000330%)
Total Quantity of materials need	1,27,500	1,89,900	2,21,700	4,43,700
Less: Beginning inventory of direct materials	26,100	40,500	54,900	26,100
	(87000*30%)	(135,000*30%)	(183,000*30%)
Quantity of Material to be purchased	1,01,400	1,49,400	1,66,800	4,17,600

ekkarill92 answered 1 year ago

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