Question

Production and Purchases Budgets Drainage Solutions Culverts produces small culverts for water drainage under two-lane dirt roads. Budgeted unit sales for the next several months are: Month Sales September 2.400 October 1,900 November 1,200 December 900 Support At the beginning of September, 600 units of finished goods were in inventory. During the final third of the year, as road construction declines, plans are to have an inventory of finished goods equal to 25 percent of the following month's sales. Each unit of finished goods requires 600 pounds of raw materials at a cost of $5 per pound. Management wishes to maintain month-end inventories of raw materials equal to 50 percent of the following month's needs. Five hundred thousand pounds of raw materials were on hand at the start of September Required a. Prepare a production budget for September, October, and November. Do not use a negative sign with your answers. Drainage Solutions Culverts Production Budget For the Months of September, October, and November Sept. Oct. Nov. Budgeted sales Plus desired ending Inventory Total Inventory requirements Less beginning inventory Budgeted production Dec b. Prepare a purchases budget in units and dollars for September and October Do not use a negative sign with your answers.

Answer 1

a) Production Budget

	Sept	Oct	Nov	Dec
Budgeted Sales	2400	1900	1200	900
Add: Desired ending inventory	475	300	225
Total inventory requirements	2875	2200	1425
Less: Beginning inventory	-600	-475	-300
Budgeted production	2275	1725	1125

b) Direct material Budget

	Sep	Oct	Nov
Units in pounds
Production requirements	1365000	1035000	675000
Plus desired ending inventory	517500	337500
Total inventory needs	1882500	1372500
Less: Beginning inventory	500000	517500
Budgeted purchase in pounds	1382500	855000
Dollars
Budgeted purchases	6912500	4275000