Upward Inc. has projected sales to be 10,300 units in January; 12,400 units in F
ID: 2397696 • Letter: U
Question
Upward Inc. has projected sales to be 10,300 units in January; 12,400 units in February; 8,800 units in March; 10,600 units in April; and 11,800 units in May. There are 860 units on hand on January 1. Management has determined that it needs to carry 4% of the following month’s sales in ending inventory. Assume that each unit requires 4 litres of raw materials. There are 6,300 litres of raw materials on hand at January 1. Management has decided that raw materials ending inventory should be 10% of next month’s production needs. Upward Inc. pays $1.90 per litre for raw materials.
Prepare a raw materials budget for the first quarter, by month and in total. Include quantity of materials to purchase and cost for the purchases.
Explanation / Answer
Answers
Working
January
February
March
April
A
Budgeted Sales unit
10,300.00
12,400.00
8,800.00
10,600.00
B = next month's A x 4%
Desired ending Inventory
496.00
352.00
424.00
472.00
C = A+B
Total
10,796.00
12,752.00
9,224.00
11,072.00
D
Beginning Inventory
860.00
496.00
352.00
424.00
E = C - D
Units to be produced
9,936.00
12,256.00
8,872.00
10,648.00
Working
January
February
March
Quarter [total]
A [calculated above]
Units to be produced
9,936.00
12,256.00
8,872.00
31,064.00
B
Raw material required per unit
4.00
4.00
4.00
4.00
C=Ax B
Total requirement for production
39,744.00
49,024.00
35,488.00
124,256.00
D = 10% x Next month's C
Desired ending inventory of raw material
4,902.40
3,548.80
4,259.20
4,259.20
E = C + D
Total needs
44,646.40
52,572.80
39,747.20
128,515.20
F
Beginning Inventory of raw material
6,300.00
4,902.40
3,548.80
6,300.00
G = E - F
Raw material to be purchased [litres]
38,346.40
47,670.40
36,198.40
122,215.20
H
Cost of raw material per litre
$ 1.90
$ 1.90
$ 1.90
$ 1.90
I = G - H
Cost of raw material purchased
$ 72,858.16
$ 90,573.76
$ 68,776.96
$ 232,208.88
Working
January
February
March
April
A
Budgeted Sales unit
10,300.00
12,400.00
8,800.00
10,600.00
B = next month's A x 4%
Desired ending Inventory
496.00
352.00
424.00
472.00
C = A+B
Total
10,796.00
12,752.00
9,224.00
11,072.00
D
Beginning Inventory
860.00
496.00
352.00
424.00
E = C - D
Units to be produced
9,936.00
12,256.00
8,872.00
10,648.00
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