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In: Accounting

Production and Raw Materials Budget: Hai Dunna Wanna Go Ltd. manufactures hula hoops, whatever that is....

Production and Raw Materials Budget: Hai Dunna Wanna Go Ltd. manufactures hula hoops, whatever that is. They need a special type of plastic, often hard to get, for the hoops. This year they plan to order the plastic ahead of time so they will cover three months of production without running out, just in case more ordering problems come up. Following is the information that should be useful to predict how much plastic they would need for July and August (only):

  1. Production of Hula Hoops: They want to keep at least 25% of the next month’s sales to make sure they have sufficient quantities, given that sales of this highly sought after product is not so predictable. The June 30th finished hoop inventory was 30,000 hoops.
  2. Sales are budgeted as follows:
    1. July            50,000 hoops
    2. August        80,000 hoops
    3. September 40,000 hoops

Required: Prepare a production budget for July and August.

Solutions

Expert Solution

July August September
Forecasted unit sales             50,000             80,000       40,000
+ Planned ending inv. units             20,000             10,000
Total production required             70,000             90,000
- Beginning F/G inventory             30,000             20,000
Units to be manufactured             40,000             70,000
Working
July August
Planned ending inv. units (80,000 x 25%) (40,000 x 25%)

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