Question

Monty Company’s sales budget projects unit sales of part 198Z of 10,400 units in January, 13,000 units in February, and 13,400 units in March. Each unit of part 198Z requires 4 pounds of materials, which cost $3 per pound. Monty Company desires its ending raw materials inventory to equal 40% of the next month’s production requirements, and its ending finished goods inventory to equal 20% of the next month’s expected unit sales. These goals were met at December 31, 2016.

(a)

Prepare a production budget for January and February 2017.

MONTY COMPANY Production Budget                                                                       For the Month Ending January 31, 2017For the Quarter Ending February 28, 2017For the Two Months Ending February 28, 2017
		January		February
Desired Pounds in Ending Materials InventoryTotal Pounds Needed for ProductionCost Per PoundUnits To Be ProducedRequired Production UnitsDirect Materials PurchasesBeginning Direct MaterialsTotal Cost of Direct Materials PurchasesBeginning Finished Goods InventoryDesired Ending Finished Goods InventoryDirect Material Pounds Per UnitExpected Unit SalesTotal Required UnitsTotal Materials Required
AddLess:                                                                       Cost Per PoundTotal Required UnitsDesired Ending Finished Goods InventoryUnits To Be ProducedRequired Production UnitsTotal Materials RequiredDirect Material Pounds Per UnitDesired Pounds in Ending Materials InventoryBeginning Direct MaterialsExpected Unit SalesDirect Materials PurchasesTotal Pounds Needed for ProductionTotal Cost of Direct Materials PurchasesBeginning Finished Goods Inventory
Direct Material Pounds Per UnitTotal Pounds Needed for ProductionTotal Required UnitsExpected Unit SalesTotal Cost of Direct Materials PurchasesDirect Materials PurchasesDesired Pounds in Ending Materials InventoryBeginning Finished Goods InventoryRequired Production UnitsCost Per PoundTotal Materials RequiredBeginning Direct MaterialsDesired Ending Finished Goods InventoryUnits To Be Produced
AddLess:                                                                       Desired Pounds in Ending Materials InventoryTotal Pounds Needed for ProductionBeginning Direct MaterialsDesired Ending Finished Goods InventoryDirect Material Pounds Per UnitTotal Required UnitsDirect Materials PurchasesRequired Production UnitsTotal Cost of Direct Materials PurchasesCost Per PoundUnits To Be ProducedTotal Materials RequiredBeginning Finished Goods InventoryExpected Unit Sales
Direct Material Pounds Per UnitBeginning Finished Goods InventoryExpected Unit SalesDesired Ending Finished Goods InventoryRequired Production UnitsTotal Required UnitsTotal Materials RequiredBeginning Direct MaterialsCost Per PoundTotal Pounds Needed for ProductionDesired Pounds in Ending Materials InventoryTotal Cost of Direct Materials PurchasesUnits To Be ProducedDirect Materials Purchases

Answer 1

Solution

Production budget
	January	February
Units to be sold	10400	13000
Desired Ending Finished Inventory	2600	2680*
Total Units needed	13000	15680
Less : Beginning Finished Inventory	2080	2600
Units to be Produced	10920	13080

*13400 x 20%