The company wants to end each month with ending finished goods inventory equal t
ID: 2480187 • Letter: T
Question
The company wants to end each month with ending finished goods inventory equal to 40% of next month’s sales. Finished goods inventory on April 1 is 256 units. Assume July’s budgeted production is 670 units. In addition, each finished unit requires five pounds of raw materials and the company wants to end each month with raw materials inventory equal to 20% of next month’s production needs. Beginning raw materials inventory for April was 672 pounds. Assume direct materials cost $5 per pound.
Prepare a direct materials budget for April, May, and June.
Hospitable Co. provides the following sales forecast for the next four months:Explanation / Answer
Production required and Raw Material ought to purchase as per production requirement:
Particulars April May June July Sales 640 720 670 670 Less: Opening Balance of Finished goods 256 288 268 384 432 402 Add: Closing Balance of Finished goods 288 268 268 Production required 672 700 670 670 RAW MATERIAL PURCHASED: Material required for production @ 5 pounds per unit 3360 3500 3350 3350 Less: Opening Balance of Material 672 700 670 2688 2800 2680 Add: Closing Balance of Material 700 670 670 Purchases of Raw Materials 3388 3470 3350 Cost of Purchases @ $5 per pound $16940 $17350 $16750