Question

2. Sportz Corporation is preparing its budget for the second quarter of the calendar year. The following monthly sales data (in units) have been forecasted:

April	45,000
May	48,000
June	54,000
July	60,000
August	75,000

Additional information:
• Desired ending inventory each month—Finished goods: 25% of next month's sales.
• Desired ending inventory each month—Raw materials: 20% of next month's production needs
• Number of raw material units required per unit of finished product: 5 @ $4

Required:

Prepare a production budget, a direct material usage and purchases budget for the second quarter of the calendar year.

Answer 1

( 1) Production Budget:

	April	May	June	Total	July
Expected Unit Sales	45,000	48,000	54,000	147,000	60,000
Add: Desired Ending Finished Goods Inventory(25% of next month's sales)	12,000	13,500	15,000	15,000	18,750
Total Need	57,000	61,500	69,000	162,000	78,750
Less: Beginning Finished Good Inventory	(11,250)	(12,000)	(13,500)	(11,250)	(15,000)
Required Units to be Produced	45,750	49.500	55,500	150,750	63,750

Working:

1) Ending Inventory:

April (48,000 *25%)	$12,000
May($54,000 *25%)	$13,500
June($60,000 *25%)	$15,000
July ( 75,000 *25%)	$18,750

2) Beginning Inv. Of April: ( 45,000 ×25%)= $ 11,250

( 2) Direct Material Budget:

	April	May	June	Total	July
Units to be Produced	45,750	49,500	55,500	150,750	63,750
Multiply By :Direct mat. Per Unit	5	5	5	5	5
Total Need	228,750	247,500	277,500	753,750	318,750
Add: Desired Ending Inventory( 20% of next month's production)	49,500	55,500	63,750	63,750
Less: Begi. Inventory	(45,750)	(49,500)	(55,500)	(45,750)
Direct Material Purchase( lbs)	232,500	253,500	285,750	771,750
Multiply by :Cost per Unit	$4	$4	$4	$4
Cost of direct material purchase	$930,000	$1,014,000	$1,143,000	$ 3,087,000

Working:

1) Ending Inventory:

April. ( 247,500*20%)=	$49,500
May ( 277,500*20%)=	$55,500
June ( 318,750 *20%)=	$63,750