Alvarez Company produces various parts used in the automotive industry. The sale
ID: 2422006 • Letter: A
Question
Alvarez Company produces various parts used in the automotive industry. The sales budget for the first eight months of 2012 shows the following projections:
Month
Units
Month
Units
January
25,000
May
31,400
February
27,000
June
34,500
March
32,000
July
36,700
April
28,500
August
35,000
Inventory on December 31 of the previous year was budgeted at 6,250 units. The desired quantity of finished-goods inventory at the end of each month in 2012 is to be equal to 25 percent of the next month’s budgeted unit sales. Each unit of finished product requires three pounds of raw material. The company wants to have 30 percent of next month’s required raw materials on hand at the end of each month.
Required
A.Prepare a production budget for January through June of 2012.
B.Prepare a material purchases budget for the same period, assuming that each pound of raw material costs $22.
Month
Units
Month
Units
January
25,000
May
31,400
February
27,000
June
34,500
March
32,000
July
36,700
April
28,500
August
35,000
Explanation / Answer
Answer:A.
Answer:B.
Production Budget Particulars January Feb March April May June Sales units 25000 27000 32000 28500 31400 34500 Add:Closing Ending inventory (25% of next month budgeted) 6750 8000 7125 7850 8625 9175 Toral Required 31750 35000 39125 36350 40025 43675 Less: Opening inventory 6250 6750 8000 7125 7850 8625 Units to be Produced 25500 28250 31125 29225 32175 35050Related Questions
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