Ortiz Company\'s sales budget projects unit sales of part 198Z of 10,000 units i

Question

Ortiz Company's sales budget projects unit sales of part 198Z of 10,000 units in January, 12,000 units in February, and 13,000 units in March. Each unit of part 198Z requires 2 pounds of materials, which cost $3 per pound. Ortiz Company desires its ending raw materials inventory to equal 40% of the next month's production requirements, and its ending finished goods inventory to equal 25% of the next month's expected unit sales. These goals were met at December 31, 2010.


1. Prepare a production budget for January and February 2011. (Enter all amounts as positive amounts and subtract where necessary.)

2. Prepare a direct materials budget for January 2011. (Enter all amounts as positive amounts and subtract where necessary.)

Explanation / Answer

Production Budget for January and February

                                       DEC          JAN          FEB         MARCH

Sales unit                              10000       12000      13000

Ending inventory

(25% of next month sales) 2500 3000 3250

Production during that month

(75% of the expected sales)               7500         9000

Total Production in units                  10500       12250

Direct materials budget for January 2011

Direct material required for January = 10500 x 2 pounds = 21,000 pounds

40% of next month production requirement =0.40 x 12250 x 2 = 9800 pounds

40% of this month production requirement has been fulfiled in December, thus only 21000 x 0.6 = 12600 pounds is required to be purchased for this month production requirement.

Thus,Direct material budget for January = 12600 + 9800 = 22400 pounds

Hope this helps!

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.