Question

The Timbrick Company produces and sells a single product. The production of this product requires 15 liters of direct material for each unit produced. Timbrick has an inventory policy which sets a target ending inventory of finished goods equal to 15% of next months expected unit sales. The target ending inventory for direct materials is 30% of the materials needed for production for next month. The budgeted cost of direct materials is $0.40 per liter. Normally, Timbrick pays the suppliers for 30% of a month's purchases in the month of the purchase and they pay the remainder (70%) the next month. On 1 January 20x3, Timbrick produced a budget for the three-month period (January, February, March). An incomplete version of that budget is shown below. (Missing values show "-") January February March 1st Quarter 23,000 24,000 36,000 83,000 3,600 PRODUCTION BUDGET Budgeted unit sales Target ending finished goods inventory Total requirements (finished goods) Beginning finished goods inventory 26,600 29,400 40,800 Units to be produced 22,750 83,950

Answer 1

March Production budget for January, February and March :- Particulars January Budgeted unit sales 23,000 Add: Ending inventory of finished goods 3,600 Total requirement of Finished goods 26,600 Less: Beginning inventory of finished goods (3,850) Units to be produced 22,750 February 24,000 5,400 1st Qtr 83,000 4,800 29,400 36,000 4,800 40,800 (5,400) 35,400 (3,600) 25,800 87,800 (3,850) 83,950 March 1st Qtr 15.00 15.00 15.00 Direct materials budget for January, February and March :- Particulars January Materials required per unit (liters/unit) Materials to be used in production 341,250 Target ending materials inventory 116,100 Total requirements (materials) 457,350 Beginning materials inventory (103,575) Materials to be purchased 353,775 February 15.00 387,000 159,300 531,000 135,900 546,300 666,900 1,259,250 135,900 1,395,150 (103,575) 1,291,575 (116,100) 430,200 (159,300) 507,600 March 1st Qtr Material cost budget for January, February and March :- Particulars January Material cost per liter (S/liter) 0.40 Total cost of purchases 141,510 Cash paid for supplier 135,693 0.40 February 0.40 172,080 150,681 0.40 203,040 181,368 516,630 467,742 Beginning finished goods inventory for January, 20x3 is = 3,850 Total requirements (finished goods) for the 1st Quarter = 87,800 Budgeted unit sales for April, 20x3. = Cannot be determined with given info Units to be produced for February, 20x3 = 430,200 Estimate the total cost of purchases for December, 20x2. = Cannot be determined with given info