Question

Card Bicycle makes bicycles, which use two tires each. At the end of 2018, the Finished Goods Inventory is expected to contain 2,000 Bicycles and Raw Materials is expected to contain 3,000 bicycle tires. There is no Work in Process inventory at the end of any month. The Sales forecast for 2019 projects that the company will sell 12,000 bicycles (quantity, not dollars) in January, 16,000 in February and 18,000 in March and 20,000 in April.

The company has a policy of having 20% of next months bicycle sales in Finished Goods ending inventory each month and 10% of the company’s raw material needs for the next month in ending Raw Materials Inventory.

Determine how many tires Card should budget to purchase each of the first three months of 2019.

Answer 1

Card Bicycles
Production Budget	Jan	Feb	March	Jan-Mar	April	Note
Budgeted sales (Units)	12,000.00	16,000.00	18,000.00	46,000.00	20,000.00	A
Add: Closing	3,200.00	3,600.00	4,000.00	4,000.00		F=20% of A of next month.
Less: Opening	2,000.00	3,200.00	3,600.00	2,000.00		G=20% of A of same month. For January its given in the problem.
Production Budget	13,200.00	16,400.00	18,400.00	48,000.00		H
Material Budget	Jan	Feb	March	Jan-Mar
Production Budget	13,200.00	16,400.00	18,400.00	48,000.00		B
Material required per unit	2.00	2.00	2.00			C
Material Usage Budget	26,400.00	32,800.00	36,800.00	96,000.00		D=B*C
Add: Closing	3,280.00	3,680.00	3,000.00	3,000.00		E=10% of D of next month. For March its given in the problem.
Less: Opening	3,000.00	3,280.00	3,680.00	3,000.00		I=10% of D of same month. For January its given in the problem.
Material Purchase Budget (tyre)	26,680.00	33,200.00	36,120.00	96,000.00		J