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In: Accounting

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%) (43000*3*30%)
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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