The Jung Corporation\'s budget calls for the following production: Quarter 1 45,

Question

The Jung Corporation's budget calls for the following production:

Quarter 1    45,000 units
Quarter 2    38,000 units
Quarter 3    34,000 units
Quarter 4    48,000 units


Each unit of production 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 that quarter's direct material requirements

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

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

Explanation / Answer

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 considerig the budgeting process, what should management consider when budgeting for raw material inventory? Please be specific. The Inventory is a current assets for the company, and it has impact of the liquidity of the company. From the Balance sheet, when 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 be control over the storage – Minimum and maximum level of inventory must be maintained. Last but not the least, proper stock accounting and costing method should be adopted. The cost of goods manufactured should be properly and accurately calculated.

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