Question

Wright Lighting Fixtures forecasts its sales in units for the next four months as follows: March 28,000 April 30,000 May 27,500 June 26,000 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 $23,000 per month. Dividends of $22,200 are to be paid in May. The firm produced 27,000 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. Wright Lighting Fixtures Production Schedule March April May June Projected unit sales Desired ending inventory Tetal units required Beginning inventory Units tn he rendared

Answer 1

Production Schedule

Particulars	March	April	May	June
Projected Sales	28,000	30,000	27,500	26,000
Desired ending inventory(WN:1)	45,000	41,250	39,000
Total unit required	73,000	71,250	66,500
Beginning Inventory(WN:2)	(42,000)	(45,000)	(41,250)
Unit to be produced	31,000	26,250	25,250

Cash budget

Particulars	February	March	April	May
Unit produced	27,000	31,000	26,250	25,250
Material cost($5per unit)(payment is made after production)		27,000×$5 =$135,000	31,000×$5 =155,000	26,250×$5 =$131,250
Labour Cost($9 per unit)		31,000×$9 =$279,000	26,250×$9 =236,250	25,250×$9 =227,250
Fixed overhead		$23,000	$23,000	$23,000
Dividend(paid only in may)		-	-	$22,200
Total cash payment		$437,000	$414,250	$403,700

Working Note(WN):

1) Ending inventory is 1&1/2times of expected sale of following months

March = 30000(April sales)× 1 1/2=30000×1.5= 45,000

April = 27500(may sales)×1.5= 41,250

May= 26000(June sales)×1.5= 39,000

2) beginning Inventory is ending inventory of previous month

Ending inventory of February is 1and 1/2time of sales of March

Ending inventory of February= 1 1/2× 28,000= 1.5×28,000= 42,000units

Now, beginning Inventory

March = ending Inventory of February= 42,000

April = ending inventory of March(WN:1) = 45,000

May = ending inventory of April(WN:1) =41,250

3) Material Cost is paid after production

So payment is done after a month.