The inventory of finished goods at the end of each month must equal 18% of the n
ID: 2375584 • Letter: T
Question
The inventory of finished goods at the end of each month must equal 18% of the next month%u2019s sales. This requirement had been met on January 1 of the current year.
Each unit of product requires four specialized electrical switches. Since the production of these specialized switches by Key%u2019s suppliers is sometimes irregular, the company has a policy of maintaining an ending inventory at the end of each month equal to 34% of the next month%u2019s production needs. This requirement had been met on January 1 of the current year.
Prepare a production plan for January, February, March and in total for the quarter. (Input all amounts as positive values.)
A sales budget is given below for one of the products manufactured by the Key Co.:Explanation / Answer
Production Budget February March April May
Expected sales (units) 35,000 60,000 40,000 30,000
+ Desired End Inv 12,000 8,000 6,000
- Beginning Inv ( 7,000) (12,000) ( 8,000)
Production required 40,000 56,000 38,000
Direct materials purchases budget February March April
Expected production (units) 40,000 56,000 38,000
x 3 switches required per unit x 3 x 3 x 3
DM required for current prod 120,000 168,000 114,000
+ Desired Ending Inv 50,400 34,200
- Beginning Inv (36,000) (50,400)
DM purchases required 134,400 151,800
Cash collections budget
Sales Feb Mar April May
Feb 20 x 35,000 = 700,000 420,000 210,000 70,000
Mar 20 x 60,000 = 1,200,000 720,000 360,000 120,000
Apr 20 x 40,000 = 800,000 480,000 240,000
May 20 x 30,000 = 600,000 360000
910000 720000
So here is the explanation.
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