24. The market research department of Stellar Mfg. projects the following sales

Question

24. The market research department of Stellar Mfg. projects the following sales volume in units for the next 5 months: August-20,000; September-22,000; October-25,000 November-24,000; and December-23,000. Stellar has a policy that finished goods ending inventory should be 15% of the following month's forecast sales volume, and direct materials ending inventory should be 20% of the following month's direct materials usage. Each unit requires 2 pounds of direct materials costing $4.00 per pound. Beginning inventories include 2,500 finished units and 4,000 pounds of direct materials. What are the expected DM purchases (in dollars) for the following months? a. August: b. September: c. October (4pts) (4pts) (4pts)

Explanation / Answer

PRODUCTION BUDGET AUG SEP OCT TOTAL NOV DEC Budgeted Sales Units 20,000 22,000 25,000 67,000 24,000 23,000 Add: Desired Ending Finished inventory 3,300 3,750 3,600 3,600 3,450 Total Needs 23,300 25,750 28,600 70,600 27,450 Less: Beginning Finished Inventory 2,500 3,300 3,750 2,500 3,600 Required Production in units 20,800 22,450 24,850 68,100 23,850 RAW MATERIAL PURCHASE BUDGET AUG SEP OCT TOTAL NOV Budgeted Production Units 20,800 22,450 24,850 68,100 23,850 RM Requirement per unit 2 2 2 2 2 Total Raw material required in pounds 41,600 44,900 49,700 136,200 47,700 Add: Desired Ending Inventory 8,980 9,940 9,540 9,540 Total needs 50,580 54,840 59,240 145,740 Less: Beginning Inventory 4,000 8,980 9,940 4,000 Budgeted Purchase in pounds 46,580 45,860 49,300 141,740 Cost per pound 4 4 4 4 Budgeted Purchases in $ 186320 183440 197200 566960

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