6. Lester Corp. manufactures three products (A, B, and C) from three raw materia

Question

6. Lester Corp. manufactures three products (A, B, and C) from three raw materials (X, Y, and Z). The following table indicates the number of pounds of each material that is required to manufacture each type of product: Product Material X Material Y Material Z The Corp. has a policy of maintaining an inventory of finished goods on all three products equal to 25 percent of the next month?s budgeted sales. Listed below is the sales budget for the first quarter of the current year: Refer to Lester Corp. Assuming that the Corp. meets its required inventory policy, prepare a production budget for the first 2 months of the current year for each of the three products. Refer to Lester Corp. Unit costs of materials X, Y, and Z are respectively $4,$3, and $5. The Lester Corp. has a policy of maintaining its raw material inventories at 50 percent of the next month?s production needs. Assuming that this policy is satisfied, prepare a material purchases budget for all three materials in both pounds and dollars for January.

Explanation / Answer

Answer:

Production Budget for January Particulars Product A Product B Product C Required sales          10,000            11,000        12,000 Add: Required ending inventory            2,250              3,000           2,000 Less: Beginning inventory ( 25% of January sales)          (2,500)            (2,750)        (3,000) Required production for the month            9,750            11,250        11,000 Production Budget for February Particulars Product A Product B Product C Required sales            9,000            12,000           8,000 Add: Required ending inventory            2,750              2,500           2,500 Less: Beginning inventory          (2,250)            (3,000)        (2,000) Required production for the month            9,500            11,500           8,500 Material Budget for January Particulars Material X Material Y Material Z Required for production for the month Product A: (X-9750*2) (Y-9750*3) (Z- 9750*2)          19,500            29,250        19,500 Product B: (X-11250*2) (Y-11250*1) (Z- 11250*2)          22,500            11,250        22,500 Product C: (X-11000*3) (Y-11000*2) (Z- 11000*2)          33,000            22,000        22,000 Add: Required ending inventory Product A: (X-9500*2) (Y-9500*3) (Z- 9500*2)          *50%            9,500            14,250           9,500 Product B: (X-11500*2) (Y-11500*1) (Z- 11500*2)   *50%          11,500              5,750        11,500 Product C: (X-8500*3) (Y-8500*2) (Z- 8500*2)          *50%          12,750              8,500           8,500 Less: Beginning inventory (25% of production need of January) Product A          (9,750)          (14,625)        (9,750) Product B        (11,250)            (5,625)      (11,250) Product C        (16,500)          (11,000)      (11,000) Total Material purchases in pounds          71,250            59,750        61,500 Material Rate per pound               4.00                 3.00             5.00 Total Material purchases in Dollars (Rate * Pound)        285,000          179,250      307,500

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