Question

A sales budget is given below for one of the products manufactured by the Key Co.: Sales Budget in Units January 20,000 February 35,000 March 60,000 April 40,000 May 30,000 June 25,000 The inventory of finished goods at the end of each month must equal 17% of the next month’s sales. On December 31, the finished goods inventory totaled 3,400 units. Each unit of product requires three specialized electrical switches. Since the production of these specialized switches by Key’s suppliers is sometimes irregular, the company has a policy of maintaining an ending inventory at the end of each month equal to 36% of the next month’s production needs. This requirement had been met on January 1 of the current year. Required: Prepare a production plan for January, February, March and April. (Input all amounts as positive values.) January February March April Total needs Units to be produced Calculate the quantity of switches to be purchased each month for January, February, March and in total for the quarter. (Input all amounts as positive values.) January February March Quarter Total needs Required purchases

Answer 1

PRODUCTION BUDGET
			Jan	Feb	March	QUARTER	April	May
Budgeted Sales Units			20,000	35,000	60,000	115,000	40,000	30,000
Add: Desired Ending Finished inventory			5,950	10,200	6,800	6,800	5,100
Total Needs			25,950	45,200	66,800	121,800	45,100
Less: Beginning Finished Inventory			3,400	5,950	10,200	3,400	6,800
Required Production in units			22,550	39,250	56,600	118,400	38,300
RAW MATERIAL PURCHASE BUDGET
			Jan	Feb	March	QUARTER	April
Budgeted Production units			22,550	39,250	56,600	118,400	38,300
Raw material required per unit			3	3	3	3	3
Total production requirement			67,650	117,750	169,800	355,200	114,900
Add: Desired Ending Inventory			42,390	61,128	41,364	41,364
Total needs			110,040	178,878	211,164	396,564
Less: Beginning Inventory			24,354	42,390	61,128	24,354
Budgeted Purchase units			85,686	136,488	150,036	372,210