Question

Question 6 (12 marks) Kohli Cricket Equipment Ltd manufactures cricket bats. Management is now preparing detailed budgets for the third quarter, July to September, and has assembled the following information to assist in preparing the budget: The Marketing Department has estimated sales in units as follows for the remainder of the year July August September August 12,000 14,000 10,000 October November December 8,000 6,000 6,000 • The company maintains finished goods inventories equal to 10% of the following month's sales. The inventory of finished goods on July 1 will be 2200 bats. • Each cricket bat requires 2 kilograms of Willow Wood. To prevent shortages, the company would like the inventory of Willow Wood on hand at the end of each month to be equal to 20% of the following month's production needs. The inventory of Willow Wood on hand on 31 July will be 5,440 kilograms. Required: (i) Prepare a production budget in units for each of the months, July to September. (3 marks)

Answer 1

Production Budget
	July	August	Sep	Oct	Nov
Budgeted Sales	12,000	14,000	10,000	8,000	6,000
Add: Desired Ending Inventory	1,400	1,000	800	600
Total required	13,400	15,000	10,800	8,600
Less: Beginning Inventory	2,200	1,400	1,000	800
Budgeted Production	11,200	13,600	9,800	7,800
Direct Material Budget
	July	August	Sep	Oct
Budgeted Production	11200	13600	9800	7800
Material per unit	2	2	2	2
Material required for production	22400	27200	19600	15600
Add: Desired Ending Inventory	5440	3920	3120
Total required	27840	31120	22720
Less: Beginning Inventory		5440	3920
Budgeted Purchases		25680	18800