Question

Problem 3 (10 points) Lubriderm Corporation has the following budgeted sales for the next six-month period: Month June July August September October November Unit Sales 90,000 120,000 210,000 150,000 180,000 120,000 There were 30,000 units of finished goods in inventory at the beginning of June. Plans are to have an inventory of finished products that equal 20% of the unit sales for the next month. Five pounds of materials are required for each unit produced. Each pound of material costs $8. Inventory levels for materials are equal to 30% of the needs for the next month. Materials inventory on June 1 was 15.000 pounds. Required: a. Prepare production budgets in units for July, August, and September. b. Prepare a purchases budget in pounds for July, August, and September, and give total purchases in both pounds and dollars for each month.

Answer 1

Part A

LUBRIDERM CORPORATION
Production Budget
July, August and September
	July	August	September	Total
Sales in units	120000	210000	150000	480000
Add: Desired Ending Inventory (next month’s sales * 20%)	42000	30000	36000	36000
T%)otal Needs	162000	240000	186000	516000
Less: Beginning Inventory	18000	42000	30000	18000
Units to be produced	144000	198000	156000	498000

Part B

LUBRIDERM CORPORATION
Purchases Budget
July, August and September
	July	August	September	Total
Production budget (units)	144000	198000	156000	498000
Materials requirements per unit	5	5	5	5
Materials needed for production	720000	990000	780000	2490000
Budgeted ending inventory (next month’s * 30%)	297000	234000	252000	252000
Total materials requirements (units)	1017000	1224000	1032000	2742000
Beginning inventory	-216000	-297000	-234000	-216000
Purchases (in pounds)	801000	927000	798000	2526000
Material price per unit	$8	$8	$8	$8
Total cost of direct material purchases (in dollars)	$6408000	$7416000	$6384000	$20208000

(180000+24000-36000)*5*30% = 252000