7-5 Production and Purchases Budgets in Units At the end of business on June 30,

Question

7-5

Production and Purchases Budgets in Units
At the end of business on June 30, 2009, 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 2009 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 220,000 sq. yards August 160,000 sq. yards September 150,000 sq. yards October 160,000 sq. yards

Explanation / Answer

The Wooly Rug Company All figures in nos. Production Budget for the months of July, August and September 2009 July August September Opening Inventory of Rugs (in Sq.yards) 100000 64000 60000 Production in Sq.Yards 184000 156000 154000 Sales in Sq. Yards 220000 160000 150000 Closing Inventory of Rugs 64000 60000 64000 (in Sq.yards) Raw Marerial Purchase Budget for the months of July and August 2009 July August Opening RM Inventory (in Pounds) 400000 234000 RM Purchased 754000 777000 RM required for production 920000 780000 Closing RM Inventory (in Pounds) 234000 231000

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