Question

Required information Ruiz Co. provides the following sales forecast for the next four months: April 540 May 620 June 570 July 660 Sales (units) The company wants to end each month with ending finished goods inventory equal to 30% of next month's forecasted sales. Finished goods inventory on April 1 is 162 units. Assume July's budgeted production is 570 units. In addition, each finished unit requires six pounds (lbs.) of raw materials and the company wants to end each month with raw materials inventory equal to 30% of next month's production needs. Beginning raw materials inventory for April was 1,015 pounds. Assume direct materials cost $4 per pound. Prepare a production budget for the months of April, May, and June. RUIZ CO. Production Budget For April, May, and June April Next month's budgeted sales (units) 620 Ratio of inventory to future sales 30% May 570 June 6 60 Required units of available production Units to be produced

Answer 1

1. Production budget for the months of April, May, and June.
	April	May	June
Next month's budgeted sales (units)                                                           (a)	620	570	660
Ratio of inventory to future sales                                                               (b)	30%	30%	30%
Budgeted ending inventory (units)                                                              (c = a x b)	186	171	198
Budgeted unit sales for month                                                                     (d)	540	620	570
Required units of available production                                                    (e = c + d)	726	791	768
Budgeted beginning inventory (units)        [Refer working note 1]              (f)	162	186	171
Units to be produced                                                                                  (e - f)	564	605	597

.

.

2. Direct materials budget for April, May, and June
	April	May	June
Budgeted production (units)     [Refer production budget]                 (a)	564	605	597	Units
Material requirements per unit                                                           (b)	6	6	6	lbs.
Materials needed for production (lbs.)                                              (c = a x b)	3,384	3,630	3,582	lbs.
Budgeted ending inventory (lbs.)   [Refer working note 2]               (d)	1,089	1,075	1,026	lbs.
Total material requirments (lbs.)                                                      (e = c + d)	4,473	4,705	4,608	lbs.
Beginning inventory (lbs.)              [Refer working note 3]               (f)	1,015	1,089	1,075	lbs.
Materials to be purchased (lbs.)                                                        (g = e - f)	3,458	3,616	3,533	lbs.
Cost per lb.                                                                                         (h)	4	4	4	per lbs.
Total budgeted direct material cost                                                     (g x h)	13,832	14,464	14,132

.

.

Working Note 1 - Beginning inventory for the month
Note: Ending finished goods inventory quantity for a month would become beginning finished goods inventory quantity for the following month
For April                  [Mentioned in the question]	162	units
For May                     [Ending inventory of April]	186	units
For June                     [Ending inventory of May]	171	units

.

.

Working Note 2 - Calculation of budgeted ending inventory at the end of each month
	April	May	June	July
Budgeted production (units)     [Refer production budget]                 (a)	564	605	597	570
Material requirements per unit                                                           (b)	6	6	6	6
Materials needed for production (lbs.)                                              (c = a x b)	3,384	3,630	3,582	3,420
Budgeted ending inventory = 30% of next​ month's production needs
For April = May's production needs x 30% = 3,630 x 30%	1,089
For May = June's production needs x 30% = 3,582 x 30%		1,075
For June = July's production needs x 30% = 3,420 x 30%			1,026

.

.

Working Note 3 - Beginning inventory for the month
Note: Ending raw materials inventory quantity for a month would become beginning raw materials inventory quantity for the following month
For April                  [Mentioned in the question]	1,015	units
For May                     [Ending inventory of April]	1,089	units
For June                     [Ending inventory of May]	1,075	units