Ruiz Co. provides the following sales forecast for the next four months AprilMay

Question

Ruiz Co. provides the following sales forecast for the next four months AprilMay 590 June 540 July 630 Sales (units) 510 The company wants to end each month with ending finished goods inventory equal to 30% of next month's forecasted sales. Finished goods inventory on April 1 is 153 units. Assume July's budgeted production is 540 units. In addition, each finished unit requires five pounds (Ibs.) 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 or April was 534 pounds. Assume direct materials cost $6 per pound.

Explanation / Answer

RUIZ CO. Production Budget For April, May and June April May June Next month's budgeted sales (units)                          590                          540                          630 Ratio of inventory to future sales 30% 30% 30% Budgeted ending inventory (units) 590*30% = 177 540*30% = 162 630*30% = 189 Budgeted unit sale for month                          510                          590                          540 Required units of available production 510+177 = 687 590+162 = 752 540+189 = 729 Budgeted beginning inventory (units)                          153 590*30% = 177 540*30% = 162 Units to be produced 687-153 = 534 752-177 = 575 729-162 = 567

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