Lottie dottie toys manufacturers and distributors a number of products to retail

Question

Lottie dottie toys manufacturers and distributors a number of products to retailers. One of these products, PlayallDay , required three pounds of material A135 in the manufacture of each unit. The company is now planning raw materials for the third quarter – July , August, and September. Peak sales of PlayallDay occur in the third quarter of each year. To keep production and shipments moving smoothly, the company has the following inventory requirements:
a. The finished goods inventory on hand at the end of each month must be equal to 5,000 units plus 30% of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 17,000 units.
b. The raw materials inventory on hand at the end of each month must be equal to one – half of the following month’s production needs for raw materials. The raw materials inventory on June 30 for material A135 is budgeted to be 64,500 pounds.
c. The company maintains no work in process inventories.
A sales budget for PlayallDay for the last six months of the year follows.

Required:
1. Prepare a production budget for PlayallDay for the months July, August, September, and October.
2. Examine the production budget that you prepared. Why will the company produce more units than it sells in July and August and less units than it sells in September and October ?
3. Prepare a direct materials budget showing the quantity of material A135 to be purchased for July, August, and September and for the quarter in total.

Budgeted sales in unit July 40000 August 50000 September 70000 Octuber 35000 November 20000 December 10,000

Explanation / Answer

Ans 1 Working Mercandise Purchase Budget July August September October Total November Total Budgeted sales in units 40000 50000 70000 35000 195000 20000 Add: Budgeted Closing Inventory 30% of next month sales S*.2+5000 units 20000 26000 15500 11000 11000 Total needs 60000 76000 85500 46000 206000 Less: Beginning Inventory 17000 20000 26000 15500 17000 Required Unit Purchases 43000 56000 59500 30500 189000 Ans 2 Because of Desired ending inventory the company produces more units in July and august and less units in Oct & Nov Ans 3 Direct material Budget (in pounds) July August September Total October Required unit Purchases 43000 56000 59500 158500 35000 No.of pounds of material 3 3 3 3 3 Quantity of raw material needed to produce 129000 168000 178500 475500 105000 Add: Budgeted Closing Raw material Inventory 50% of next month production needs 84000 89250 52500 52500 11000 Total needs 213000 257250 231000 528000 46000 Less: Beginning Raw Material Inventory 64500 84000 89250 64500 15500 Quantity of raw material to be Purchased 148500 173250 141750 463500 30500

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