Question

The Volt Battery Company has forecast its sales in units as follows:

January	2,800		May	3,350
February	2,650		June	3,500
March	2,600		July	3,200
April	3,100

Volt Battery always keeps an ending inventory equal to 140% of the next month’s expected sales. The ending inventory for December (January’s beginning inventory) is 3,920 units, which is consistent with this policy.
  
Materials cost $11 per unit and are paid for in the month after purchase. Labor cost is $4 per unit and is paid in the month the cost is incurred. Overhead costs are $16,000 per month. Interest of $10,000 is scheduled to be paid in March, and employee bonuses of $15,200 will be paid in June.

a. Prepare a monthly production schedule for January through June.
  

b. Prepare a monthly summary of cash payments for January through June. Volt produced 2,600 units in December.
  

Answer 1

a.Monthly Production Schedule:

	Jan	Feb	Mar	Apr	May	Jun
Budgeted Sales	2,800	2,650	2,600	3,100	3,350	3,500
+ Ending Inventory (140% of next month’s Sales)	3,710	3,640	4,340	4,690	4,900	4,480
Total Required	6,510	6,290	6,940	7,790	8,250	7,980
Less: Beginning Inventory	3,920	3,710	3,640	4,340	4,690	4,900
Production Required	2,590	2,580	3,300	3,450	3,560	3,080

b.Schedule of cash payments:

	Jan	Feb	Mar	Apr	May	Jun
Purchase Cost	28,600	28,490	28,280	36,300	37,950	39,160
Labor Cost (Same Month)	10,360	10,320	13,200	13,800	14,240	12,320
Overhead Costs	16,000	16,000	16,000	16,000	16,000	16,000
Interest			10,000
Employee Bonus						15,200
Total Cash payments	54,960	54,810	67,480	66,100	68,190	82,680

Note: Ending inventory of one month becomes beginning inventory of next month