Question

Q3) A Firm Sales budget shows:

NOV           Dec          Jan           Feb                Mar                Apr

8,000         8,700       9,900      11,000         11,500         11,800

Ending finished goods inventory should be 17% of next month's sales. The company has continually maintained this inventory policy.

The product requires 6 pounds of raw material Zilgo, and the raw material inventory policy is to maintain 22% of next month's production needs in ending inventory. The cost of Zilgo is $2.90 per pound.

Required. a purchases budget in units and dollars for November through February

Q4) Assume the firm in Problem (3) pays for purchases 25% in the current month and 75% in one month later. For the current month purchase payments (25%), the firm receives a 1% cash discount.

Required: a cash payments schedule for December through February

Answer 1

Calculation Nov Dec Jan Feb A Firm Production budget Req 1 Budgeted Next Months Sales (Units) Ratio of inventory to future sales Budgeted Ending Inventory (Units) Budgeted Sales (Units) Inventory Needed Less Beginning Inventory Required Production (Units) =8,700*17% Budgeted Next Months Sales (Units) * 17% Nov 8,700 17% 1,479 8,000 9,479 1,360 8,119 Dec 9,900 17% 1,683 8,700 10,383 1,479 8,904 Jan 11,000 17% 1,870 9,900 11,770 1,683 10,087 Feb 11,500 17% 1,955 11,000 12,955 1,870 11,085 Mar 11,800 17% 2,006 11,500 13,506 1,955 11,551 =8,000*17% End Iny of Nov End Inv of Dec End Inv of Jan Nov Dec Mar 11,551 69,306 Raw Materials Purchases budget Reg 2 Required Production (Units) Materials required per unit Raw Material Required Add Ending Inventory Raw Materials Needed Less Beginning Inventory Raw Material Purchases in Units Raw Material Cost per unit Raw Material Purchases in Dollars =8,119*6 Required Production (Units) * 6 pounds =53,424*22% Raw Material Required * 22% Nov 8,119 6 48,714 11,753 60,467 10,717 49,750 2.90 144,276 Dec 8,904 6 53,424 13,315 66,739 11,753 54,986 2.90 159,458 Jan 10,087 6 60,522 14,632 75,154 13,315 61,839 2.90 179,334 Feb 11,085 6 66,510 15,247 81,757 14,632 67,125 2.90 194,663 -48,714*22% End Inv of Nov End Inv of Dec End Inv of Jan =49,750*2.90 Raw Material Purchases * $2.90 Schedule of Cash Payments Req3 Payments in current month Payments in one month later Total Cash Payments Dec 39,466 108,207 147,673 Jan 44,385 119,594 163,979 Feb 48,179 134,501 182,680 Dec Jan Feb =159,458*25%*(1-1%) =179,334*25%*(1-1%) =194,663*25%*(1-1%) =144,276*75% =159,458*75% =179,334*75%