The company wants to end each month with ending finished goods inventory equal t

Question

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 201 units. Assume July's budgeted production is 700 units. In addition, each finished unit requires four 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 833 pounds. Assume direct materials cost $6 per pound.

Explanation / Answer

SOLUTION

Production Budget-

Ruiz Co.

Direct Materials Budget

For April, May, and June

April May June Next month's budgeted sales (units) 750 700 790 Ratio of inventory to future sales 30% 30% 30% Budgeted ending inventory (units) 225 210 237 Add: Budgeted sales for the month 670 750 700 Required units of available production 895 960 937 Deduct: Beginning inventory (units) (201) (225) (210) Budgeted production 694 735 727

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