Question

A company manufactures product X. The company requires 8 pounds of raw material to produce each unit of X. The company expects sales as follows: October 15,000 units, November 28,000 units, December 49,000 units, January 9,000 units, and February 7,000 units. The company has 4,200 pounds of raw materials and 4,000 units of finished goods on hand at the end of September. The company’s accounting policies require the company to have 10% of the next month’s sales and 25% of the next month’s raw materials needs on hand at the end of the month.

Construct a raw materials purchases budget for the manufacture of product X for the fourth quarter.

Answer 1

Solution:

Production Budget - Quarter 4
Particulars	Amount
Budgeted Sales units	92000
Desired Ending inventory (9000*10%)	900
Total needs	92900
Less: Beginning inventory	4000
Budgeted Production units	88900

Production Budget - January
Particulars	Amount
Budgeted Sales units	9000
Desired Ending inventory (7000*10%)	700
Total needs	9700
Less: Beginning inventory	900
Budgeted Production units	8800

Raw Material Purchase Budget - Quarter 4
Particulars	Amount
Budgeted Production units	88900
Raw material requirement per unit (In pound)	8
Total Raw material requirement	711200
Add: Desired Ending inventory (8800*8*25%)	17600
Total needs	728800
Less: Beginning inventory	4200
Budgeted Purchases of raw material (In pound)	724600