Question

The good as old company manufactures antique looking oak rocking chairs. Budgeted sales for the first five months of the year are as follows:
                            Budget sales units
January.                             200
February.                            240
March.                                180
April.                                   160
May.                                    240

Easch rocking chair requires 10 Square feet of oak, at a cost of $20 per square feet. The company wants to maintain an inventory of chair equal to 25 percent of the following month's sales. At the beginning of the year, 40 chairs are on hand.
Assume the company maintain an inventory of oak equal to 10 percent of the next month's needs. At the beginning of the year, 240 Square feet of oak are on hand. Inventory of oak at March 31 is estimated to be 180 square feet.

Required:
1) Prepare a production budget, in units for each of the first four months of the year.

2) prepare a purchases budget, in dollars., for each of the first three months of the year.

Answer 1

Answer:

Production Budget
	January	February	March	April	May
Budgeted Unit Sales	200	240	180	160	240
Add: Desired ending finished goods inventory	60	45	40	60
Total needs	260	285	220	220
Less: Beginning finished goods inventory	40	60	45	40
Required production in units	220	225	175	180

Purchase Budget
	January	February	March	April
Required production (units)	220	225	175	180
Raw materials requireed to produce one unit (Sq.ft)	10	10	10	10
Production needs (Sq.ft)	2200	2250	1750	1800
Add: Desired ending inventory of raw materials (Sq.ft)	225	175	180
Total needs (Sq.ft)	2425	2425	1930
Less: Beginning inventory of raw materials (Sq.ft)	240	225	175
Raw materials to be purchased (Sq.ft)	2185	2200	1755
Cost of raw materials per (Sq.ft)	20	20	20
Cost of raw materials to be purchased	43700	44000	35100