Question

The Ahead of Our Time Inc. manufactures state of the art bamboo dining room tables. Budgeted sales for the first 5 months of the years are as follow:

Month Budgeted Sales(units)

January    200

Feburary    240

March    180

April 160

May 240

June    300

Each Table requires 10 square feet of bamboo at a cost of $20 per square foot.

The Company wants to maintain an inventory of tables equal to 25% of the following month's sales. At the beginning of the year, 40 tables were on hand

Assume the company maintains an inventory of bamboo equal to 10% of the next month's production needs. At the beginning of the year, 240 square feet of bamboo are on hand. Inventory of bamboo at April 30 is estimated to be 255 square Feet.

A. Prepare a production budget, in units, for each of the first 4 months.

B. Prepare a Direct Material purchases budget, in dollars, for each of the first three months.

Answer 1

Answer for A)

Production budget for first four months

Particulars	january	February	March	April
Sales estimated	200	240	180	160
(Add ) Closing inventory	60 [I.e 240×25%]	45 [I.e 180×25%]	40 [I.e 160×25%]	60 [.e 240×25%]
(Less)opening imventory	40[given]	60	45	40
Planned production	220	225	175	180

Answer for B)

Direct material purchase budget(in dollars) for first three months.

Particulars	January($)	February($)	March($)
Raw material for producton	44000 [I.e 220 units×10sq ft×$20]	45000 [I.e 225 units×10sq ft×$20]	35000 [I.e 175 units×10sq ft×$20]
(Add)Closing stock	4500 [I.e $45000×10%]	3500 [I.e $35000×10%]	3600 [180 units×10sq ft×$20×10%]
(Less) opening material stock	4800 [I.e 240sq ft×$20]	4500	3500
Total cost of raw materials to be incurred	43700	44000	35100

note:

1) Opening stocks of month is closing stock of previous month.

2)Raw material requirements are drawn with production budget estimates