Question

Question 3 5 Marks

Varney Company makes rolling suitcases. Its sales budget for four months is:

Month	Sales R
March	15,000
April	20,000
May	40,000
June	60,000

Varney's policy is that ending inventory of finished suitcases should equal 30% of the next month's sales. Beginning inventory (March 1) is 5,300 suitcases. Each suitcase required 1.5 meters of ballistic nylon. The ending inventory policy for nylon is that 20% of the following month's production needs must be on hand. On March 1, Varney had 10,450 meters of nylon in inventory.

Required:

3.1 What is the desired ending inventory of suitcases for April? (1)

3.2 What is the budgeted production of suitcases for April? (1)

3.3 What is the desired ending inventory of nylon for March? (1)

3.4 What are the budgeted meters of nylon to be purchased in March? (1)

3.5 Assuming each suitcase required two meters of ballistic nylon, what is the desired ending inventory of nylon for March? (1)

Answer 1

	Particulars	March	April	May	June
	Sales Budget	15000	20000	40000	60000
3.1	Particulars	April
	Desired Ending Inventory of FG	12000
	(30% of May Sales)
3.2	Particulars	April					*Calculation of March Closing Inventory:
	Sales Budget	20000					Desired Ending Inventory of FG	6000
	Desired Ending Inventory of FG	12000					(30% of April Sales)
	Total Need for the Month	32000
	Less: Opening Balance of Inventory of FG*	6000
	Net Production to be done	26000					**Production Need for March:
							Sales Budget	15000
3.3	Particulars	March					Desired Ending Inventory of FG	6000
	Desired Ending Inventory of RM	7800					Total Need for the Month	21000
	Working Note below:						Less: Opening Balance of Inventory of FG	4500	(30% of March Sales)
	Particulars	April					Net Production to be done	16500
	Net Production to be done	26000
	Raw Material Need for Production	39000	(26000*1.5)
	Desired Ending Inventory of RM	7800
	(20% of April Production Need)
3.4	Estimated Purchase Budget for March	March
	Production Need for March**	16500
	Raw Material Need for Production	24750
	Desired Ending Inventory of RM	7800
	Total Need	32550
	Less: Opening RM Balance	10450
	Net Purchases	22100
3.5	Particulars	March
	Desired Ending Inventory of RM	10400
	Working Note below:
	Particulars	April
	Net Purchases	26000
	Raw Material Need for Production	52000	(26000*2)
	Desired Ending Inventory of RM	10400
	(20% of April Production Need)