Question

On Wednesday, we had the following information:

• Sales projections for the next three quarters:
  • 1^st quarter           40,000 units
  • 2^nd quarter          60,000 units
  • 3^rd quarter           100,000 units

For Friday – add the following in order to do a production budget for the 1^st two quarters AND the total for the sixth month period:

• The Company desires an ending finished goods inventory (at the end of each quarter) equal to 25% of the budgeted sales for the next quarter.
• Beginning finished goods inventory for the first quarter equals 12,000 units.

Add the following to compute (you do not have to prepare a full budget) the # of pounds of raw materials needed to be purchased for the first quarter assuming:

• Each unit requires 10 pounds of material.
• The Company desires an ending raw materials inventory of 10% of the following quarter’s production needs.
• Beginning raw materials inventory in the first quarter is 40,000 pounds.

REQUIRED

1.            Prepare a production budget for the first two quarters, using the format below:

	Quarter 1	Quarter 2	Sixth Month Period
Budgeted Unit Sales
Add: Ending Finished Goods
Total needs
Less: Beginning Finished Goods
Required Production

2.            Compute the number of pounds of raw materials to be purchased in the first quarter (you don’t need to prepare a formal budget, but show computations for your final result.

Answer 1

1. Prepare a production budget for the first two quarters, using the format below:

.	Quarter 1	Quarter 2	Sixth Month Period
Budgeted Unit Sales	40000	60000	100000
Add: Ending Finished Goods	15000	25000	25000
Total needs	55000	85000	125000
Less: Beginning Finished Goods	12000	15000	12000
Required Production	43000	70000	113000

*Ending Finished Goods = 25% of the budgeted sales for the next quarter

Q1 = 60000 * 25% = 15000

Q2 = 100000 * 25% = 25000

Beginning Finished Goods

Q1 = 12000 (given )

Q2 = Ending Finished Goods of Q1 = 15000

2. Compute the number of pounds of raw materials to be purchased in the first quarter (you don’t need to prepare a formal budget, but show computations for your final result.

.	Quarter 1
Required Production units	43000
* Number of raw material for one units	10
Required Raw material needed for Production	430000
Add: Ending Raw Material inventory	70000
Total needs for production	500000
Less: Beginning Raw Material inventory	40000
Raw material Needed to be Purchase	460000

*Ending Raw Material inventory = 10% of the required Raw material needed for Production for the next quarter

Q1 = 700000 * 10% = 70000

Beginning Raw Material inventory

Q1 = 40000 (given )