Question

Croy Inc. has the following projected sales for the next five months:

 

Month	Sales in Units
April	3,450
May	3,845
June	4,580
July	4,125
August	3,910

 

Croy’s finished goods inventory policy is to have 50 percent of the next month’s sales on hand at the end of each month. Direct materials costs $3.00 per pound, and each unit requires 2 pounds. Direct materials inventory policy is to have 50 percent of the next month’s production needs on hand at the end of each month. Direct materials on hand at March 31 totaled 3,648 pounds.

 

Required:

1. Determine budgeted production for April, May, and June.

2. Determine budgeted cost of materials purchased for April and May.

 

Answer 1

Answer:

1. Production units for April      3,647.5 units

  Production units for May       4212.5 units

  Production units for June       4352.5 units

2. Budgeted cost of materials for April = $ 23,580

   Budgeted cost of materials for April = $ 25,695

Explanation:

Computation of budgeted production units

                                                                                          April          May         June  

                                                                                   Units         Units        Units

Ending Inventory - 50 % of next  month                 1,922.5       2,290       2,062.5

Add: Sales                                                                 3,450       3,845        4,580

Less: Opening Inventory-50% of current month   ( 1,725)      (1,992.5)     (2290)

Production units for the  month                            3,647.5       4212.5      4352.5

Computation of cost of materials

Units production                                                      3,647.5         4212.5      4352.5

Material requirement per unit - 2 pounds            

Total material requirement for production             7,295         8,425      8,705

Closing inventory-50% next month production     4212.5       4352.5                                                                                                    

Opening inventory-50% of current production     (3,647.5).   (4212.5)

Total material requirement for production              7,860        8,565

Cost per pound of direct material  $3.00

Total direct material Budget                                 $ 23,580   $ 25,695