Question

1. Hospitable Co. provides the following sales forecast for the next four months:

Sales (units) . . . . . . . . April: 500, May: 580, June: 540, July: 620

The company wants to end each month with ending finished goods inventory equal to 25% of next month’s sales. Finished goods inventory on April 1 is 190 units. Assume July’s budgeted production is 540 units. Prepare a production budget for the months of April, May, and June.

2. Refer to the information in question 1. In addition, each finished unit requires five pounds of raw materials and the company wants to end each month with raw materials inventory equal to 30% of next month’s production needs. Beginning raw materials inventory for April was 663 pounds. Assume direct materials cost $4 per pound. Prepare a direct materials budget for April, May, and June.

(Answer in 350-500 words)

Answer 1

1) Production Budget

	April	May	June
Sales units	500	580	540
Add: ending inventory	145	135	155
Less: beginning inventory	190	145	135
Budgeted production in units	455	570	560

2) Direct materials budget

	January	February	March
Budgeted production in units	455	570	560
DM required per unit	5	5	5
Total DM required	2,275	2,850	2,800
Add: ending DM	855	840	810
Less: opening DM	663	855	840
Budgeted DM purchases	2,467	2,835	2,770
Cost per DM	$4	$4	$4
Budgeted DM purchases in $	$9,868	$11,340	$11,080