Electro Company manufactures an innovative automobile transmission for electric

Question

Electro Company manufactures an innovative automobile transmission for electric cars. Management predicts that ending finished goods inventory for the first quarter will be 65,700 units. The following unit sales of the transmissions are expected during the rest of the year: second quarter, 219,000 units; third quarter, 212,000 units; and fourth quarter, 470,000 units. Company policy calls for the ending finished goods inventory of a quarter to equal 30% of the next quarter's budgeted sales. (Ending inventory for the first quarter does not comply with company policy.) Prepare a production budget for both the second and third quarters that shows the number of transmissions to manufacture. ELECTRO COMPANY Production Budget Second and Third Quarters Second Quarter Third Quarter Required units of available production Units to be produced

Explanation / Answer

1. Production budget:

2. Direct materials budget:

Calculations and explanations for 1:

Required units of production = 63600+219000 = 282,600

Units to be produced = 282,600 - 65,700 = 216,900

Calculations for 2:

Materials needed for production = 510,000*0.8 = 408,000

Budgeted ending inventory = 585,000*0.8*(20%) = 93,600

Total materiasl requirement = 408,000+93,600 = 501,600

Budgeted beginning inventory = 0.2*408,000 = 81,600

Materials to be purchased = 501,600 - 81,600 = 420,000

Total cost = 420,000*1.76 = 739,200

Second quarter Third quarter Fourth quarter Sales 219,000.00 212,000.00 470,000.00 30% of next quarter's budgeted sales 63,600.00 141,000.00 Second quarter Third quarter Budgeted ending inventory 63,600.00 141,000.00 Add: budgeted sales during quarter 219,000.00 212,000.00 Required units of production 282,600.00 353,000.00 less: budgeted beginning balance of inventory 65,700.00 63,600.00 Units to be produced 216,900.00 289,400.00

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