Question 3 5 Marks Varney Company makes rolling suitcases. Its sales budget for

Question

Question 3 5 Marks

Varney Company makes rolling suitcases. Its sales budget for four months is:

Varney's policy is that ending inventory of finished suitcases should equal 30% of the next month's sales. Beginning inventory (March 1) is 5,300 suitcases. Each suitcase required 1.5 meters of ballistic nylon. The ending inventory policy for nylon is that 20% of the following month's production needs must be on hand. On March 1, Varney had 10,450 meters of nylon in inventory.

Required:

3.1 What is the desired ending inventory of suitcases for April? (1)

3.2 What is the budgeted production of suitcases for April? (1)

3.3 What is the desired ending inventory of nylon for March? (1)

3.4 What are the budgeted meters of nylon to be purchased in March? (1)

3.5 Assuming each suitcase required two meters of ballistic nylon, what is the desired ending inventory of nylon for March? (1)

Explanation / Answer

Particulars March April May June Sales Budget 15000 20000 40000 60000 3.1 Particulars April Desired Ending Inventory of FG 12000 (30% of May Sales) 3.2 Particulars April *Calculation of March Closing Inventory: Sales Budget 20000 Desired Ending Inventory of FG 6000 Desired Ending Inventory of FG 12000 (30% of April Sales) Total Need for the Month 32000 Less: Opening Balance of Inventory of FG* 6000 Net Production to be done 26000 **Production Need for March: Sales Budget 15000 3.3 Particulars March Desired Ending Inventory of FG 6000 Desired Ending Inventory of RM 7800 Total Need for the Month 21000 Working Note below: Less: Opening Balance of Inventory of FG 4500 (30% of March Sales) Particulars April Net Production to be done 16500 Net Production to be done 26000 Raw Material Need for Production 39000 (26000*1.5) Desired Ending Inventory of RM 7800 (20% of April Production Need) 3.4 Estimated Purchase Budget for March March Production Need for March** 16500 Raw Material Need for Production 24750 Desired Ending Inventory of RM 7800 Total Need 32550 Less: Opening RM Balance 10450 Net Purchases 22100 3.5 Particulars March Desired Ending Inventory of RM 10400 Working Note below: Particulars April Net Purchases 26000 Raw Material Need for Production 52000 (26000*2) Desired Ending Inventory of RM 10400 (20% of April Production Need)

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