Question

Croy Inc. has the following projected sales for the next five months:

Month	Sales in Units
April	3,580
May	3,890
June	4,540
July	4,110
August	3,990

Croy’s finished goods inventory policy is to have 50 percent of the next month’s sales on hand at the end of each month. Direct materials costs $2.70 per pound, and each unit requires 2 pounds. Direct materials inventory policy is to have 50 percent of the next month’s production needs on hand at the end of each month. Direct materials on hand at March 31 totaled 3,735 pounds.

Required:

1. Determine budgeted production for April, May, and June.

2. Determine budgeted cost of materials purchased for April and May.

Answer 1

Part 1) Budgeted ptoduction for April, may and june

	April	May	June
Sales(A)	3580	3890	4540
Ending inventory (B)	1945	2270	2055
Opening inventory(C)	1790	1945	2270
Budgeted production (A+ B - C)	3735	4215	4325

Part 2) Calculation of budgeted cost of materials purchased for April and may

	April	May
Current production	3580*2*2.7=19332	3890*2*2.7=21006
Ending inventory	1945*2*2.7=10503	2055*2*2.7=11097
- Opening inventory	3735*2.7=10085	10503
Budgeted cost of materials to be purchased	19750	21600