Rad Co. provides the following sales forecast and production budget for the next

Question

Rad Co. provides the following sales forecast and production budget for the next four months: The company plans for finished goods inventory of 150 units at the end of June. In addition, each finished unit requires five pounds of raw materials and the company wants to end each month with raw materials inventory equal to 30% of next month's production needs. Beginning raw materials inventory for April was 705 pounds. Each finished unit requires 0.40 hours of direct labor at the rate of $19 per hour. The company budgets variable overhead at the rate of $23 per direct labor hour and budgets fixed overhead of $8,300 per month. Prepare a raw materials budget for April, May, and June.

Explanation / Answer

Particulars April May June July Budgeted production (units) 470 600 570 570 Material requirement per unit (pounds) x 5 x 5 x 5 x 5 Materials needed for production (pounds) (A) 2,350 3,000 2,850 2,850 Next period's budgeted production needs 3,000 2,850 2,850 Ratio of raw material inventory to future needs x 30% x 30% x 30% Budgeted ending raw material inventory (B) 900 855 855 Total materials requirement (pounds) (A) + (B) 3,250 3,855 3,705 Deduct: Beginning inventory (pounds) 705 900 855 Materials to be purchased (pounds) 2545 2955 2850

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