Question

A sales budget is given below for one of the products manufactured by the Key Co. 21,000 36,000 61,000 41,000 31,000 units January February March units units April Мay units units The inventory of finished goods at the end of each month should equal 20% of the next month's sales. On December 31 the finished goods ending inventory totaled 4,000 units. Each unit of product requires three specialized electrical switches. The company has a policy of maintaining an ending inventory at the end of each month equal to 30% of the next month's production needs. On December 31 the direct material ending inventory totaled 21,780 switches Required: a. Prepare a budget showing the required production in units for January, February, and March (Show your computations) b. Prepare a direct materials budget showing the quantity of switches to be purchased in January, February, and March. (Show your computations)

Answer 1

Part A

Estimated Production units
	January	February	March	First Quarter
Units sold	21,000	36,000	61,000	118,000
Add: ending finished goods inventory	7,200	12,200	8,200	8,200
Units available for sale	28,200	48,200	69,200	126,200
Less: Beginning finished goods inventory	4,000	7,200	12,200	4,000
Units Produced	24,200	41,000	57,000	122,200

Part B

Material Budget
	January	February	March	First Quarter
Units Produced	24,200	41,000	57,000	122,200
Multply: switches per unit	3	3	3	3
Production needs	72,600	123,000	171,000	366,600
Add: ending raw material	36,900	51,300	35,100	35,100
Raw material Available for use	109,500	174,300	206,100	401,700
Less: Beginning raw material	21,780	36,900	51,300	21,780
Purchase of material	87,720	137,400	154,800	379,920

Calculations

	January	February	March	April	May
Units sold	21,000	36,000	61,000	41,000	31,000
Add: ending finished goods inventory (Next month's units sold*20%)	7,200	12,200	8,200	6,200
Units available for sale	28,200	48,200	69,200	47,200
Less: Beginning finished goods inventory	4,000	7,200	12,200	8,200
Units Produced	24,200	41,000	57,000	39,000
	January	February	March	April	May
Units Produced	24,200	41,000	57,000	39,000
Multply: switches per unit	3	3	3	3
Production needs	72,600	123,000	171,000	117,000
Add: ending raw material (next month's production needs*30%)	36,900	51,300	35,100
Raw material Available for use	109,500	174,300	206,100
Less: Beginning raw material	21,780	36,900	51,300
Purchase of material	87,720	137,400	154,800