A sales budget is given below for one of the products manufactured by the OMI Co

Question

A sales budget is given below for one of the products manufactured by the OMI Co January Februany March April May June 25,000 40,000 units 65,000 units 45,000 units 35,000 units 30,000 The inventory of finished goods at the end of each month must equal 20% of the next month's sales. However, on December 31 the finished goods inventory totaled only 4,000 units Each unit of product requires three pounds of specialized material. Since the production of this specialized material by OMI's suppliers is sometimes irregular, the company has a policy of maintaining an ending inventory at the end of each month equal to 30% of the next month's production needs. This requirement had been met on January 1 of the current year. Required: a budget showing the required production each month for January, February, March, and a. Prepare April. b. Prepare a budget showing the quantity of switches to be purchased each month for January February, and March.

Explanation / Answer

PRODUCTION BUDGET jan Feb March QUARTER April may Budgeted Sales Units 25,000 40,000 65,000 130,000 45,000 35,000 Add: Desired Ending Finished inventory 8,000 13,000 9,000 9,000 7,000 Total Needs 33,000 53,000 74,000 139,000 52,000 Less: Beginning Finished Inventory 4,000 8,000 13,000 4,000 9,000 Required Production in units 29,000 45,000 61,000 135,000 43,000 RAW MATERIAL PURCHASE BUDGET jan Feb March QUARTER April may Budgeted Production units 29,000 45,000 61,000 135,000 43,000 Raw material r equired per unit 3 3 3 3 3 Total Production needs 87,000 135,000 183,000 405,000 129,000 Add: Desired Ending Inventory 40,500 54,900 38,700 38,700 Total needs 127,500 189,900 221,700 443,700 Less: Beginning Inventory 26,100 40,500 54,900 26,100 Purchase Units 101,400 149,400 166,800 417,600

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