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 20×3, 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
PRODUCTION BUDGET
Budgeted unit sales	23,000	24,000	36,000	83,000
Target ending finished goods inventory	3,600	-	-	-
Total requirements (finished goods)	26,600	29,400	40,800	-
Beginning finished goods inventory
Units to be produced	22,750	-	-	83,950
DIRECT MATERIALS PHYSICAL UNITS BUDGET
Materials required per unit (liters/unit)	15	15	15	15
Materials to be used in production	341,250	-	-	1,259,250
Target ending materials inventory	116,100	159,300	135,900	-
Total requirements (materials)	457,350	-	-	-
Beginning materials inventory	-	-	-	-
Materials to be purchased	353,775	430,200	-	1,291,575
COST BUDGET
Material cost per liter ($/liter)	0.40	0.40	0.40	0.40
Total cost of purchases	$141,510	-	-	$516,630
Cash paid to suppliers	$135,693	-	$181,368	-

You do NOT need to fill in all the missing values in the schedule above. You need to answer the following questions.

Required: Please compute the follows.

1. Beginning finished goods inventory for January, 20×3.

2. Total requirements (finished goods) for the 1^st Quarter

3. Budgeted unit sales for April, 20×3.

4.Units to be produced for February, 20×3.

5. Estimate the total cost of purchases for December, 20×2.

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 29,400 (3,600) 25,800 36,000 4,800 40,800 (5,400) 35,400 1st Qtr 83,000 4,800 87,800 (3,850) 83,950 March 1st Qtr 15.00 Direct materials budget for January, February and March :- Particulars January Materials required per unit (liters/unit) 15.00 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 15.00 387,000 159,300 546,300 (116,100) 430,200 1,259,250 135,900 15.00 531,000 135,900 666,900 (159,300) 507,600 1,395,150 (103,575) 1,291,575 March 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 1st Qtr 0.40 0.40 February 0.40 172,080 150,681 203,040 181,368 516,630 467,742