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Rocky Ltd is a small business based in Napier, it sells one product which it manufacturers...

Rocky Ltd is a small business based in Napier, it sells one product which it manufacturers itself. It is currently in the process of establishing the fourth-quarter budget for 2015. Mark Leewood, the production manager has only been working for the company for a month, and is a little bit worried about aligning the production processes. He has asked for your help and provided you with the following information:

  • The product sells for $325 per unit.
  • Estimated sales volume in units for the next six months is:

September

65,000

October

70,000

November

60,000

December

110,000

January

45,000

February

50,000

  • Rocky Ltd’s policy is to maintain ending finished goods inventory each month at a level equal to 40% of the next month’s budgeted sales.
  • To make one unit of finished product, 5 kilos of direct materials are required.
  • Rocky Ltd’s policy is to have enough materials on hand at the end of the month to equal 30% of next month’s usage.
  • The cost per kilogram of material is $22.50.
  • The product’s contribution margin is $250.
  1. Prepare a production budget for Mark Leewood, in units for the last quarter of 2015.
  2. Prepare a materials purchases budget for Mark, in kilograms for October and November 2015.
  3. What is the cost of purchases in October?
  4. Why is it important in a manufacturing environment to prepare a production and purchases budget? Answer with reference to the planning and control cycle.

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