Question

Kenner Company produces two products: SR200 and TX500. Budgeted sales for four months are as follows:

	SR200	TX500
May	8,000	20,000
June	13,000	32,000
July	11,000	39,000
August	18,000	46,000

Kenner's ending inventory policy is that SR200 should have 15% of next month's sales in ending inventory and TX500 should have 40% of next month's sales in ending inventory. On May 1, there were 1,200 units of SR200 and 9,000 units of TX500.
TX500 requires 6 units of Component A. (SR200 does not use Component A.) There were 30,000 units of Component A in inventory on May 1. Kenner wants to have 20% of the following month's production needs in inventory for Component A.

1.) What is the budgeted amount of Component A to be purchased in May?

2.) What is the desired ending inventory of Component A for May?

Please include the steps and formulas

Answer 1

we will find out the TX 500 budgeted production

	May	June
sales	20,000	32,000
Add: desired ending inventory	12,800[32,000*40%]	15,600[39,000*40%]
Less: beginning inventory	9,000	12,800
Budgeted production	23,800[20,000+12,800-9,000]	34,800[32,000+15,600-12,800]

component A

	May	June
budgeted production	23,800	34,800
component A per unit	6	6
Total units required	142,800[23,800*6]	208,800[34,800*6]
Add: desired ending inventory	41,760[208,800*20%]
Less: beginning inventory	30,000
Budgeted production	154,560[142,800+41,760-30,000]

Answer:154,560 component A to be purchased in MAY