Electro Company manufactures an innovative automobile transmission for electric

Question

Electro Company manufactures an innovative automobile transmission for electric cars. Managment predicts that ending finished goods inventorey for the first quarter will be 87.780 units. The following unit sales of the transmissions are expected during the rest of the year second quarter 231.000 units third quarter 506.000 units; and fourth quarter 248.000 units. Company policy calls for the ending finished goods inventory of a quarter to equal 38% of the next quarter's budgeteed sales. (Ending inventory for the first quarter does not comply with company policy.) Each transmission requires 0.62 pounds of a key raw material. Electro company aims to end each quarter with an ending inventory of direct materials equal to 38% of next quarter's budgered materials requirements. Direct materials cost $179 per pound. prepare a direct materials budget for the second quarter.

Explanation / Answer

Second Quarter Third Quarter Sales 231000 506000 Ending Finished Goods 38% of Next Sales Qty 192280 94240 Total 423280 600240 Less Opening Finished Goods 87780 192280 Required Production 335500 407960 Budgeted Production 335500 Materials requirements per unit 0.62 Materials needed for production (lbs) 208010 Budgeted ending inv (lbs)=407960*0.38*0.62 96115 Total materials requirements (lbs) 304125 Less Budgeted beginning inv (lbs)=335500*.38*.62 79044 Materials to be purchased (lbs) 179 Total Cost of direct material 14148840

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