Question

12.5

Production cash outflow.  National Beverage Company produces its products two months in advance of anticipated sales and ships to warehouse centers the month before sale. The inventory safety stock is 7% of the anticipated​ month's sale. Beginning inventory in October 2014 was 263,956 units. Each unit costs $0.24 to make. The average selling price is $0.68 per unit. The cost is made up of 37% labor, 48% materials, and 15% shipping​ (to the​ warehouse). The company pays for labor the month of​ production, shipping the month after​production, and raw materials the month prior to production.

1. What is the production cash outflow for products produced in the month of October​ 2014, and in what months does it​ occur?  (3 part answer) ​Note: October production is based on December anticipated sales. The​ fourth-quarter sales forecasts are as​ follows:  $1,889,000(October), $2,117,000 (November), and $2,119,000 (December).

Answer 1

PARTICULARS a) Sales b) Selling Price C) No of units (a/b) OCTOBER NOVEMBER DECEMBER $ 1,889,000 $ 2,117,000 $ 2,119,000 $ 0.68 $ 0.68 $ 0.68 2,777,941 3,113,235 3,116,176 # Octobers production is based on Decembers Anticipated sales Production outflow for October Paid In Month AMOUNT 3,116,176 PARTICULARS a) December Sale units b) Closing Inventory - 7% of Sale units c) Opening Inventory d) Units To be purchased(a+b-c) e) Cost per unit f) Total Cost g) Break Up cost 37% Labour 48% Material 15% Shipping 218,132 263,956 3,070,353 0.24 736,885 $ $ $ $ $ 272,647 NOVEMBER 353,705 SEPTEMBER 110,533 NOVEMBER Total Cash Outflow $ 736,885