Question

Tempting Toys manufactures and distributes a number of products to retailers. One of these products, Playclay, requires five pounds of material A135 in the manufacture of each unit. The company is now planning raw materials needs for the third quarter—July, August, and September. Peak sales of Playclay occur in the third quarter of each year. To keep production and shipments moving smoothly, the company has the following inventory requirements:

  

a.	The finished goods inventory on hand at the end of each month must be equal to 7,000 units plus 28% of the next month’s sales. The finished goods inventory on June 30 is budgeted to be as expected.
b.	The raw materials inventory on hand at the end of each month must be equal to one-half of the following month’s production needs for raw materials. The raw materials inventory on June 30 for material A135 is budgeted to be as expected.
c.	The company maintains no work in process inventories.

  

A sales budget for Playclay for the last six months of the year follows.

  

	Budgeted Sales in Units
July	37,000
August	47,000
September	67,000
October	32,000
November	17,000
December	7,000

  

Required:
1.	Prepare a production budget for Playclay for the months July, August, September, and October.

     

3.	Prepare a direct materials budget showing the quantity of material A135 to be purchased for July, August, and September and for the quarter in total.

Answer 1

Solution 1:

Production Budget - Tempting Toys
Particulars	July	August	September	October
Sales units	37000	47000	67000	32000
Add: Desired ending inventory (7000 +28% of next month's sales)	20160	25760	15960	11760
Less: Opening Inventory	17360	20160	25760	15960
Nos of Playclays to be produced	39800	52600	57200	27800

Solution 2:

Material Purchase Budget - Tempting toys
Particulars	July	August	September	Quarter Total
Unit to Playclays to be produced	39800	52600	57200	149600
Material needed per unit (Pounds)	5	5	5	5
Material needed for unit to produce	199000	263000	286000	748000
Add: Desired units of material in ending inventory (1/2 of next month's production needs)	131500	143000	13900	13900
Less: units of material in beginning inventory	19900	131500	143000	19900
Units of material to purchase	310600	274500	156900	742000