A sales budget is given below for one of the products manufactured by the Key Co

Question

A sales budget is given below for one of the products manufactured by the Key Co.: Sales Budget in Units January 20,000 February 35,000 March 60,000 April 40,000 May 30,000 June 25,000 The inventory of finished goods at the end of each month must equal 17% of the next month’s sales. On December 31, the finished goods inventory totaled 3,400 units. Each unit of product requires three 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 inventory at the end of each month equal to 36% of the next month’s production needs. This requirement had been met on January 1 of the current year. Required: Prepare a production plan for January, February, March and April. (Input all amounts as positive values.) January February March April Total needs Units to be produced Calculate the quantity of switches to be purchased each month for January, February, March and in total for the quarter. (Input all amounts as positive values.) January February March Quarter Total needs Required purchases

Explanation / Answer

PRODUCTION BUDGET Jan Feb March QUARTER April May Budgeted Sales Units 20,000 35,000 60,000 115,000 40,000 30,000 Add: Desired Ending Finished inventory 5,950 10,200 6,800 6,800 5,100 Total Needs 25,950 45,200 66,800 121,800 45,100 Less: Beginning Finished Inventory 3,400 5,950 10,200 3,400 6,800 Required Production in units 22,550 39,250 56,600 118,400 38,300 RAW MATERIAL PURCHASE BUDGET Jan Feb March QUARTER April Budgeted Production units 22,550 39,250 56,600 118,400 38,300 Raw material required per unit 3 3 3 3 3 Total production requirement 67,650 117,750 169,800 355,200 114,900 Add: Desired Ending Inventory 42,390 61,128 41,364 41,364 Total needs 110,040 178,878 211,164 396,564 Less: Beginning Inventory 24,354 42,390 61,128 24,354 Budgeted Purchase units 85,686 136,488 150,036 372,210

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