Exercise 9-6 On January 1, 2017, the Hardin Company budget committee has reached
ID: 2449734 • Letter: E
Question
Exercise 9-6 On January 1, 2017, the Hardin Company budget committee has reached agreement on the following data for the 6 months ending June 30, 2017.
Sales units: First quarter 5,500; second quarter 6,600; third quarter 7,300
Ending raw materials inventory: 40% of the next quarter’s production requirements
Ending finished goods inventory: 25% of the next quarter’s expected sales units
Third-quarter production: 7,740 units.
The ending raw materials and finished goods inventories at December 31, 2016, follow the same percentage relationships to production and sales that occur in 2017. 5 pounds of raw materials are required to make each unit of finished goods. Raw materials purchased are expected to cost $5 per pound.
Prepare a production budget by quarters for the 6-month period ended June 30, 2017.
Prepare a direct materials budget by quarters for the 6-month period ended June 30, 2017.
Explanation / Answer
Production Budget:
First Quarter = Beginning Inventory of finished goods = 1375 units (5500 units x 25/100)
Units required for sale in this quarter = 5500 units
Ending inventory of finished goods requirement = 1650 units (6600 x 25/100)
Production budget = 5500 units + 1650 units - 1375 units
= 5775 units
Second Quarter = Beginning Inventory of finished goods = 1650 units
Units required for sale in this quarter = 6600 units
Ending inventory of finished goods requirement = 1825 units
Production Budget = 6600 units + 1825 units -1650 units
=6775 units
Third Quarter : Production budget already given = 7740 units
Direct materials budget:
5 pounds of raw materials are required to produce one unit of finished good.
First Quarter : production budget = 5775 units
direct materials required = 5775 x 5 = 28875 pounds
beginning raw materials inventory = 11550 pounds
raw materials required for production = 28875 pounds
ending inventory required for the quarter = 6775 x 5 x (40/100) = 13550 pounds
materials required for the quarter = 28875 +13550 - 11550
= 30875 pounds
price of materials required = 30875 x 5 = $ 154375
Second Quarter : production budget = 6775 units
beginning inventory of raw materials = 13550 pounds
materials required for production = 6775 x 5 = 33875 pounds
ending inventory of raw materials = 7740 x 5 x(40/100)
= 15480 pounds
materials required for the quarter = 33875 + 15480 - 13550
= 35804 pounds
price of materials required
Third quarter : production budget = 7740 units
materials required = 7740 x 5 = 38700 pounds
materials required for the quarter = 38700 pounds - beginning inventory of 15480 pounds ofmaterials
= 23220 pounds
price of materials = 23220 x 5 = $116100
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