JThompson Inc, a manufacturer of accounting books used in the finest universitie
ID: 2461082 • Letter: J
Question
JThompson Inc, a manufacturer of accounting books used in the finest universities, has developed the following sales budget for the first six month of the year: The beginning FG inventory on January 1 is 8,000 units. The desired ending FG inventory each month is to be 25% of the next month's budgeted sales. Each finished book requires 6 yards of wood pulp at $8 per yard and 3 ounces of ink at $2 per ounce. There are 15,000 yards of wood pulp and 4,500 ounces of ink on hand January 1, and the desired ending inventory for these raw materials is 30% of the next month's production needs for raw materials. 1.Prepare production budgets for February and March. 2.Prepare direct materials purchase budgets (in units and dollars) for February and March.Explanation / Answer
Answer 1
Production Budget (january)
Beginning inventory = 8000 units
Sales = 30000 units
Desired ending inventory = 50000 x 25 % = 12500
Production units = 30000+12500-8000= 34500 units
Production Budget (february)
Beginning inventory = 12500 units
Sales = 50000 units
Desired ending inventory = 70000 x 25 % = 17500
Production units = 50000+17500-12500= 55000 units
Production Budget (March)
Beginning inventory = 17500 units
Sales = 70000 units
Desired ending inventory = 80000 x 25 % = 20000
Production units = 70000+20000-17500= 72500 units
Production Budget (April)
Beginning inventory = 20000 units
Sales = 80000 units
Desired ending inventory = 60000 x 25 % = 15000
Production units = 80000+15000-20000= 75000 units
Answer 2
Direct material purchase budget (january)
wood pulp
production units = 34500, wood pulp required = 34500 x 6 yards = 207000 yards
beginning units inventory = 15000 yards
desired end units = 30 % x (55000 x 6) = 99000 yards
units to be purchased = 207000+99000-15000 = 291000 yards x $ 8= $ 2328000
ink
production units = 34500, ink required = 34500 x3 ounces = 103500 ounces
beginning inventory = 4500 ounces
desired end inventory = 30 % x (55000 x3)= 49500 ounces
units to be purchased = 103500+ 49500 - 4500 = 148500 ounces
Direct material purchase budget (february)
wood pulp
production units = 55000, wood pulp required = 55000 x 6 yards = 330000 yards
beginning units inventory = 99000 yards
desired end units = 30 % x (72500 x 6) = 130500 yards
units to be purchased = 330000+130500-99000 = 361500 yards x $ 8= $ 2892000
ink
production units = 55000, ink required = 55000 x3 ounces = 165000 ounces
beginning inventory = 49500 ounces
desired end inventory = 30 % x (72500 x3)= 65250 ounces
units to be purchased = 165000+65250-49500 = 180750 ounces x $2 = $ 361500
Direct material purchase budget (March)
wood pulp
production units = 72500, wood pulp required = 72500 x 6 yards = 435000 yards
beginning units inventory = 130500 yards
desired end units = 30 % x (75000 x 6) = 135000 yards
units to be purchased = 435000+135000-130500 = 439500 yards x $ 8= $ 3516000
ink
production units = 72500, ink required = 72500 x3 ounces = 217500 ounces
beginning inventory = 66250 ounces
desired end inventory = 30 % x (75000 x3)= 67500 ounces
units to be purchased = 217500+67500-66250= 218750 ounces x $2 = $ 437500
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