Ortiz Company’s sales budget projects unit sales of part 198Z of 10,400 units in

Question

Ortiz Company’s sales budget projects unit sales of part 198Z of 10,400 units in January, 12,400 units in February, and 13,100 units in March. Each unit of part 198z requires 3 pounds of materials, which cost $5 per pound. Ortiz company desired its ending raw materials inventory to equal 30% of the next month’s production requirements, and its ending finished goods inventory
Equal 20% of the next month’s expected unit sales. These goals were met at December 31, 2010.
Prepare a production budget for January and February 2011.
Ortiz Company
Production Budget
For the two months ending February 28, 2010
January February
Desired ending finished goods inventory
Beg fininshed goods inventory
Total required units
Expected unit sales
+ ___add
____________________________________________________________________
Expected unit sales
Beg finished goods inventory
Total required units
Desired ending finished goods inventory
Desired ending fininshed goods inventory
Beg finished goods inventory
Expected unit sales
Total required units
-minus___________________________________________________
Beg finished goods inventory
Desired ending finished goods inventory
Expected unit sales
Total required units

Required production units

Explanation / Answer

ORTIZ COMPANY Production Budget For the Two Months Ending February 28, 2011 January February Expected Unit Sales 10,500 12,200 Add: Desired Ending Finished Goods Inventory 3,660 3,780 Total Required Units 14,160 15,980 Less: Beginning Finished Goods Inventory 3,150 3,660 Required Production Units 11,010 12,320 b) ORTIZ COMPANY Direct Materials Budget For the Month Ending January 31, 2011 January Units to Be Produced 11,010 Direct Materials Pounds per Unit 4 Total Pounds needed for Production 44,040 Add: Desired Pounds in Ending Direct Materials Inventory 7,392 Total Materials Required 51,432 Less: Beginning Direct Materials (Pounds) 6,606 Direct Materials Purchases 44,826 Cost per Pound $3 Total Cost of Direct Materials Purchases $134,478

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