Question

A sales budget is given below for one of the products manufactured by the Ferrn Co.: 3) Apri 49,000 May 52,000 June Mar Feb Jan 58,000 55,000 51,000 42,000 The inventory of finished goods at the end of each month must equal 18% of the next month's sales. Each unit of product requires six 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 invento at the end of each month equal to 28 % of the next month's production needs. The switch costs $14 each Required: prepare a budget showing the quantity and dollar amount of switches to be purchased each mont for January, February, and March.

Answer 1

February January 43,620 March Units to be produced Switches per unit Production needs Add: Desired ending inventory Total needs Less: Beginning inventory Required purchases (a) Switches cost (b) Purchases cost (a) * (b) 51,720 53,920 6 6 6 261,720 310,320 323,520 86,890 90,586 83,227 348,610 400,906 406,747 73,282 86,890 314,016 $14 90,586 316,162 $14 275,328 $14 $3,854,592 $4,396,224 $4,426,262 Workings: Beginning inventory, January (261,720* 28%) Ending inventory, March [(49,540* 6) * 28%] 73,282 83,227 Calculation of unit to be produced February 51,000 April January March Budgeted sales (units) Add: Ending Finished Goods Inventory Total Required Units Less: Beginning Finished Goods Inventory Units to be produced 42,000 55,000 49,000 9,180 9,900 8,820 9,360 63,820 58,360 51,180 7,560 43,620 60,900 9,180 9,900 8,820 51,720 53,920 49,540 Workings January February March April Ending Finished Goods Inventory (51,000 18% (55,000 18% (49,000 18% (52,000 18%) 9,180 9,900 8,820 9,360 Beginning Finished Goods Inventory (42,000 18% (51,000 18% |(55,000 18% |(49,000 18% 7,560 9,180 9,900 8,820