Question

High End Crockery Corp makes pottery bowls. The following information is available:

Budgeted Selling Price	$200	each
Budgeted Unit Sales
December	4,000
January	3,500
February	2,500
March	2,000
April	1,800
Desired ending finished goods inventory	15%	of next month's sales
Pounds of clay needed per bowl	4
Price per pound of clay	$2.50
Desired ending inventory direct materials	30%	of next month's production needs
December purchases for direct materials	$37,525
Direct labor hours per bowl	6
Direct labor cost per hour	$22.50
Variable manufacturing overhead rate	$3.20	per direct labor hour
Fixed manufacturing overhead	$2,300	per month (paid in cash monthly)
Variable operating expenses per unit sold	$16	(paid in cash monthly)
Fixed operating expenses
Salaries	$2,800	per month (paid in cash monthly)
Studio Rent	$4,500	per month (paid in cash monthly)
Depreciation	$1,600	per month
Interest expense	$3.000	per month (paid in cash monthly)
Income Tax Expense	$5,500	per month (paid in cash monthly)
Company sales
Cash Sales	35%
Credit Sales	65%
Credit sales collections
Month of sale	40%
Month after sale	55%
Never collected	5%
Cash payments for materials
In month of purchase	60%
In month after purchase	40%
Beginning cash balance	$65,000
Minimum required cash balance	$200,000 How many units should be produced in January? How many units should be produced in February? How many units should be produced in March? How many units should be produced for the quarter? How many pounds of clay are required for production in January? How many pounds of clay are required for production in February? How many pounds of clay are required for production in March?

Answer 1

Part 1
The budgeted units of product to be produce depends on sales, the desired ending inventory and the available beginning inventory
Budgeted Units to be produced = Budgeted Sales + Desired Ending Inventory - Beginning Inventory
Budgeted Units to be produced for each of the month and quarter is as follows
	January	February	March	Quarter (Total)
Sales	3500	2500	2000	8000
Add : Ending Inventory	375	300	270	270
15%*Next month budgeted sales	(2500*15%)	(2000*15%)	(1800*15%)
Less : Beginning Inventory	525	375	300	525
	3500*15%
Units to be produced	3350	2425	1970	7745
The ending inventory at quarter end is the ending inventory as on 31st March
Beginning inventory is the ending inventory of previous month
Beginning inventory for the quarter is inventory as 01st Jan or ending inventory as on 31st Dec
Ending Inventory as on 31st Dec would be 15%*Next month Budgeted Sales				15%*3500	525
No of Units to be produced in January	3350
No of Units to be produced in February	2425
No of Units to be produced in March	1970
Total No of units to be produced for the quarter	7745
Part 2
Raw Material required for Production = No of units to be produced*Pounds of clay needed per bowl or unit
	4 pounds of clay are needed per bowl
	January	February	March	Quarter (Total)
Raw Material required for production	13400	9700	7880	30980
	3350*4	2425*4	1970*4	7745*4
Raw material required for production in January	13400
Raw material required for production in February	9700
Raw material required for production in March	7880
Raw material required for production for quarter	30980