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?

Answer 1

Working Note :

	March	April	May
Sales in units	15,000	20,000	40,000
+ Ending Inventory [ 30 % *  next month's sales]	6,000	12,000	18,000
Total units needed	21,000	32,000	58,000
Less : Beginning Inventory	(5,300)	(6,000)	(12,000)
Budgeted Production of suitcases	15,700	26,000	46,000

Answer 3.1 :

Desired ending inventory of suitcases for April :

= May 's sales in units * 30 % =  40,000 units * 30 % = 12,000 suitcases

Answer 3.2

Beginning inventory for of suitcases for April = ie  ending inventory of suitcases for March

= 20,000 units * 30 % = 6,000 units

Total units of suitcases needed in April = Budgeted sales in unit in April + Desired ending inventory for April

=   20,000 + 12,000 = 32,000 units .

Budgeted production of suitcases for April

= Total units of suitcases needed in April - Beginning inventory for of suitcases for April

= 32,000 units . - 6,000 units  = 26,000 units of suitcases

Answer 3.3

Desired ending inventory of nylon for March

= 1.5 meters * Budgeted production of suitcases for April  * 20 %

= 1.5 * 26,000 (Ref working note) * 20 % = 7,800 meters

Answer 3.4

Nylon needed for production in March = Budgeted Production of suitcases in march * 1.5 meters

= 15,700 (Ref working note) * 1.5 = 23,550 meters

Total meters of nylon needed in March = Desired ending inventory of nylon for March + Nylon needed for production

= 7,800 meters +  23,550 meters = 31,350 meters

Required budgeted meters of nylon to be purchased in March :

= Total meters of nylon needed in March - Begining inventory of nylon for March

= 31,350 meters  - 10,450 meters = 20,900 meters

Answer 3.5

Desired ending inventory of nylon for March = 2 meters * Budgeted production of suitcases for April  * 20 %

= 2 * 26,000 (Ref working note) * 20 % = 10,400 meters