Please help me answer this question A sales budget is given below for one of the

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Please help me answer this question

A sales budget is given below for one of the products manufactured by the OMI Co.: The inventory of finished goods at the end of each month must equal 20% of the next month's sales. However, on December 31 the finished goods inventory totaled only 4.000 units. Each unit of product requires three pounds of specialized material. Since the production of this specialized matenal by OMI's suppliers is sometimes irregular, the company has a policy of maintaining an ending inventory at the end of each month equal to 30% of the next month's production needs. This requirement had been met on January 1 of the current year. a. Prepare a budget showing the required production each month for January, February, March, and April. b. Prepare a budget showing the quantity of switches to be purchased each month for January, February, and March.

Explanation / Answer

a) Production Budget January February March April May June Sales Budget 25000 40000 65000 45000 35000 30000 Add closing stock -20% of the following month 8000 13000 9000 7000 6000 0 Less opening stock 4000 8000 13000 9000 7000 Production required 29000 45000 61000 43000 34000 b) January February March April May Monthly production 29000 45000 61000 43000 34000 Material required 3 3 3 3 3 monthly Specialised material required 87000 135000 183000 129000 102000 Add : closing material required - 30% of foll month 40500 54900 38700 30600 Less : opening material 26100 40500 54900 38700 (87000*30%) Purchase of switches budget 101400 149400 166800 120900

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