1. Hospitable Co. provides the following sales forecast for the next four months

Question

1. Hospitable Co. provides the following sales forecast for the next four months:

Sales (units) . . . . . . . . April: 500, May: 580, June: 540, July: 620

The company wants to end each month with ending finished goods inventory equal to 25% of next month’s sales. Finished goods inventory on April 1 is 190 units. Assume July’s budgeted production is 540 units. Prepare a production budget for the months of April, May, and June.

2. Refer to the information in question 1. 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 663 pounds. Assume direct materials cost $4 per pound. Prepare a direct materials budget for April, May, and June.

(Answer in 350-500 words)

Explanation / Answer

1) Production Budget

2) Direct materials budget

April May June Sales units            500            580               540 Add: ending inventory            145            135               155 Less: beginning inventory            190            145               135 Budgeted production in units            455            570               560

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