At the end of business on June 30, 2014, the Wooly Rug Company had 100,000 squar

Question

At the end of business on June 30, 2014, the Wooly Rug Company had 100,000 square yards of rugs and 400,000 pounds of raw materials on hand. Budgeted sales for the third quarter of 2014 are:

The Wooly Rug Company wants to have sufficient square yards of finished product on hand at the end of each month to meet 40 percent of the following month's budgeted sales and sufficient pounds of raw materials to meet 30 percent of the following month's production requirements. Five pounds of raw materials are required to produce one square yard of carpeting.

Prepare a production budget for the months of July, August, and September and a purchases budget in units for the months of July and August.

Month Sales July 210,000 sq. yards August 180,000 sq. yards September 140,000 sq. yards October 160,000 sq. yards

Explanation / Answer

Opening balance is given

40% of next months sales would be the opening balance of the next month

Opening balance is given

30% of next months production requirement would be the opening balance of the next month

July August September Sales in yards           210,000          180,000          140,000 Raw material required in pounds       1,050,000          900,000          700,000 Opening balance of carpet in yards           100,000            72,000            56,000 40% of following month sales             72,000            56,000            64,000 Budget production           182,000          164,000          148,000

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