Buckeye Inc. uses the sales forecast to plan production. The company produces a

Question

Buckeye Inc. uses the sales forecast to plan production. The company produces a glowminusinminustheminusdark cup called "LightsminusOut" one month in advance of the forecasted sale. The January sales forecast of 20 units of these cups will be scheduled for December production. However, the company also notes that sales forecasts and actual sales can differ, and the company has a policy of having 20% in inventory to accommodate sales above forecast. Raw materials for LightsminusOut are acquired the month ahead (in this case, November). Wages are paid in the current month of production (December). Utilities are paid a month after production (January) and shipping is paid a month after the sale (two months after production, February). Finally, an inventory count reveals that there are currently 4 units on hand above the projected sales for November (at the start of November when the raw material order is placed). Unit production costs are $40 for raw materials, $20 for wages, $10 for utilities, and $5 for shipping. Determine the amounts of cash outflows for December's production.

Explanation / Answer

Forecast salesunit forjanuary = 20000 units Uits to be produced = 20000+20000*20% = 24000 unit Cash outflow for december Wages Paid [$20*24000 units] = $480,000

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