Question

The Volt Battery Company has forecast its sales in units as follows: January 2,200 May 2,750 February 2,050 June 2,900 March 2,000 July 2,600 April 2,500 Volt Battery always keeps an ending inventory equal to 120% of the next month’s expected sales. The ending inventory for December (January’s beginning inventory) is 2,640 units, which is consistent with this policy. Materials cost $11 per unit and are paid for in the month after purchase. Labor cost is $4 per unit and is paid in the month the cost is incurred. Overhead costs are $13,000 per month. Interest of $9,400 is scheduled to be paid in March, and employee bonuses of $14,600 will be paid in June. a. Prepare a monthly production schedule for January through June. b. Prepare a monthly summary of cash payments for January through June. Volt produced 2,000 units in December.

Answer 1

Production Schedule:

	Jan	Feb	Mar	Apr	May	June
Budgeted Sales	2,200	2,050	2,000	2,500	2,750	2,900
Add: Desired Ending Inventory -120% of next month	2,460	2,400	3,000	3,300	3,480	3,120
Total Required	4,660	4,450	5,000	5,800	6,230	6,020
Less: Beginning inventory	2,640	2,460	2,400	3,000	3,300	3,480
Required Production	2,020	1,990	2,600	2,800	2,930	2,540

Cash Payments

	Jan	Feb	Mar	Apr	May	June
Material- Next month	22,000	22,220	21,890	28,600	30,800	32,230
Labor Cost	8,080	7,960	10,400	11,200	11,720	10,160
Fixed overhead	13,000	13,000	13,000	13,000	13,000	13,000
Interest			9,400
Employee Bonus						14,600
Cash Payments	43,080	43,180	54,690	52,800	55,520	69,990