Lubriderm Corporation has the following budgeted sales for the next six-month pe

Question

Lubriderm Corporation has the following budgeted sales for the next six-month period. There were 30,000 units of finished goods in inventory at the beginning of June. Plans are to have an inventory of finished products that equal 20% of the unit sales for the next month. Five pounds of materials are required for each unit produced. Each pound of material costs $8. Inventory levels for materials are equal to 30% of the needs for the next month. Materials inventory on June 1 was 15,000 pounds. Required: Prepare production budgets in units for July, August, and September. Prepare a purchases budget in pounds for July, August, and September, and give total purchases in both pounds and dollars for each month.

Explanation / Answer

a Preparation of production budget Particulars June July August September October November Opening balance of finisher goods inventory at the beginning of the month is the closing balance of the previous month 30000 48000 42000 30000 36000 Closing balance at the end of the month is 20 % of sales of the next month 48000 42000 30000 36000 48000 Closing balance at the end of the each month ( 120000 * 20 % ) ( 240000 * 20 % ) ( 150000 * 20 % ) ( 180000 * 20 % ) ( 120000 * 20% ) Sales of the month 90000 120000 210000 150000 180000 120000 Production of finished goods in units of the month ( Sales - Opening balance - closing balance ) 108000 114000 198000 156000 192000 Note Sales = Opening balance + Production - Closing Balance ) Production = Sales - Opening balance + Closing balance ) b Preparation of purchases budget Particulars June July August September October Production of finished goods in units of the month 108000 114000 198000 156000 192000 Materials required for production of each finished goods is 5 pounds 5 5 5 5 Total pounds required for production of units of each month ( Production in units of the month * pounds required for each finished goods ) 108000*5 114000*5 198000*5 156000*5 192000*5 Total pounds required for production of units of each month 540000 570000 990000 780000 960000 Opening balance of pounds at the beginning of the month is closing the balance of the previous month 15000 171000 297000 234000 288000 Closing balance at the end of the month is 30 % of pounds required for the production of the next month 570000*30% 990000*30% 780000*30% 960000*30% Closing balance of pounds at the end of the each month 171000 297000 234000 288000 purchases of the of the each month = (Units of pounds required for production of each month + Closing balance of pounds of each month - Opening balance of pounds of each month ) 696000 696000 927000 834000 Pound of each material cost $ 8 $ 8 $ 8 $ 8 Total purchases in value ( Purchases of the month * Rate per pound ) 696000*8 696000*8 927000*8 834000*8 Total purchases in value ( Dollars ) 5568000 5568000 7416000 6672000 Note Production = Opening balance + Purchases - Closing balance Purchases = Production - Opening balance + Closing balance

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