Question

The Jung Corporation’s budget calls for the following production:Quarter 1 45,000 unitsQuarter 2 38,000 unitsQuarter 3 34,000 unitsQuarter 4 48,000 unitsEach unit ofproduction requires three pounds of direct material. The company’s policy is to begin each quarter with an inventory of direct materials equal to 30 percent of thatquarter’s direct material requirements. Compute budgeted direct materials purchases for the third quarter.

Answer 1

A.) Compute budgeted direct materials purchases for the third quarter.

Beginning Inventory 30,600
Purchase 114,600
Total Material available 145,200
Less Material consumed 102,000
Ending Inventory 43,200

The other method of its calculation is
Ending Inventory 43,200 (30% of 4th quarter production)
Production for 3rd quarter 102,000
Total material required 145,200
Less Beginning inventory 30,600 (30% of 3rd quarter requirement)
Purchase 114,600

B.) What impact does inventory have on the company's balance sheet? When considering the budgeting process, what should management consider when budgeting for raw material inventory? Please be specific.

The Inventory is a current asset for the company, and it has an impact on the liquidity of the company. From the Balance sheet, when the current ratio is calculated, inventory has a major part to perform. This can impact the current ratio and liquidity of the company.
While considering the budgeting of raw material, Management has to see that proper inventory control is in place. There should be no wastage, leakage of the material. There needs to control the storage – Minimum and maximum levels of inventory must be maintained.
Last but not the least, proper stock accounting and costing methods should be adopted. The cost of goods manufactured should be properly and accurately calculated.