Hospitable Co. provides the following sales forecast for the next four months: T

Question

Hospitable Co. provides the following sales forecast for the next four months: The company wants to end each month with ending finished goods inventory equal to 20% of next month's sales. Finished goods inventory on April 1 is 132 units. Assume July's budgeted production is 690 units. In addition, each finished unit requires five pounds of raw materials and the company wants to end each month with raw materials inventory equal to 30% of next month's production needs. Beginning raw materials inventory for April was 1,014 pounds. Assume direct materials cost $5 per pound. Prepare a direct materials budget for April, May, and June.

Explanation / Answer

April May June July Sales forecast 660 740 690 690 Budgeted Production 676 730 690 Material requirement per unit 5 5 5 Materials needed for production A 3380 3650 3450 Budgeted Ending Inventory (B = Next month A*0.3) 1095 1035 1035 Total material requirement E=A+B 4475 4685 4485 Beginning Inventory C = Last months B 1014 1095 1035 Material to be Purchased F=E-C 3461 3590 3450 ost per pound D 5 5 5 Total cost T = D*F 17305 17950 17250

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