Hospitable Co. provides the following sales forecast for the next four months: A
ID: 2472609 • Letter: H
Question
Hospitable Co. provides the following sales forecast for the next four months: April May June July Sales (units) 600 680 630 630 The company wants to end each month with ending finished goods inventory equal to 40% of next month’s sales. Finished goods inventory on April 1 is 240 units. Assume July’s budgeted production is 630 units. In addition, each finished unit requires five pounds of raw materials and the company wants to end each month with raw materials inventory equal to 20% of next month’s production needs. Beginning raw materials inventory for April was 632 pounds. Assume direct materials cost $4 per pound. Prepare a direct materials budget for April, May, and June.
Explanation / Answer
Hospitable Co Direct Material Budget For April, May and June April May June Budgeted Sales 600 680 630 Budgeted Ending Inventory 680*40% = 272 630*40% = 252 630*40% = 252 Less Budgeted Beginning inventory 240 272 252 Budgeted Production 600+272-240 = 632 680+252-272 = 660 630+252-252 = 630 Material Requirement per unit 5 5 5 Material Needed for production 632*5 = 3,160 660*5 = 3,300 630*5 = 3,150 Add: Ending Budgeted Material 3,300*20% = 660 3,150*20% = 630 3,150*20% = 630 Less: Beginning Budgeted Material 632 660 630 Material to be purchased 3,188 3,270 3,150 Material cost per pound 4 4 4 Direct material cost 12,752 13,080 12,600
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