Question

Wright Lighting Fixtures forecasts its sales in units for the next four months as follows:

March	23,000
April	25,000
May	22,500
June	21,000

Wright maintains an ending inventory for each month in the amount of one and one-half times the expected sales in the following month. The ending inventory for February (March’s beginning inventory) reflects this policy. Materials cost $5 per unit and are paid for in the month after production. Labor cost is $9 per unit and is paid for in the month incurred. Fixed overhead is $20,500 per month. Dividends of $21,700 are to be paid in May. The firm produced 22,000 units in February.

Complete a production schedule and a summary of cash payments for March, April, and May. Remember that production in any one month is equal to sales plus desired ending inventory minus beginning inventory.

Answer 1

Solution:

Production Schedule:

	March	April	May	June
Forecasted unit sales	23,000	25,000	22,500	21,000
+ Desired ending inventory	37,500(25,000 + 12,500)	33,750(22,500 + 11,250)	31,500(21,000 + 10,500)
- Beginning inventory	21,000	37,500	33,750
Units to be produced	39,500	21,250	20,250
	Cash Payments:
	February	March	April	May
Units produced	22,000	39,500	21,250	20,250
Materials (per unit $5) paid month after production		$110,000	$197,500	$106,250
Labor ($9 per unit) paid month of production		$355,500	$191,250	$182,250
Fixed overhead		$20,500	$20,500	$20,500
Dividends				$21,700
Total cash payments		$486,000	$409,250	$330,700