3. Muddy Waters Industries has projected sales of its product for the next 6 mon

Question

3. Muddy Waters Industries has projected sales of its product for the next 6 months: 300 units 700 units 2s,ooo 1, 100 60 February March April Ma June 1,000 units 900 units 400 units 300 units 36, 000 6, 0oo 12,000 Each unit is sold at $40 per unit. The cost of goods sold is typically 40% of the month's budgeted sales revenue. Muddy Waters tries to maintain a Finished Goods ending inventory equal to the 60% of next month's cost of goods sold. January beginning inventories are expected to conform to company policy. Prepare a purchase budget for March, and April Sanuary Teb Apil CoGS Tolal Tnventery nead Rurchase Nee ded

Explanation / Answer

Answer

All working forms part of the answer. Working column of equation is also provided.

Purchase needed will be Cost of goods sold + required ending inventory - opening inventory

Working Months Jan Feb Mar Apr May June A Budgeted Sold units 300 700 1000 900 400 300 B SP per unit 40 40 40 40 40 40 C=AxB Total Sales Revenue 12000 28000 40000 36000 16000 12000 D=C x 40% Cost of Goods Sold 4800 11200 16000 14400 6400 4800 E=60% of next month's D Required ending inventory 6720 9600 8640 3840 2880 0 F=D+E Total requirement 11520 20800 24640 18240 9280 4800 G=E of last month Opening Inventory 2880 6720 9600 8640 3840 2880 H=F-G Purchase required 8640 14080 15040 9600 5440 1920

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