3. Garver Industries has budgeted the following unit sales: February March April

Question

3. Garver Industries has budgeted the following unit sales: February March April May 12,000 8,500 10,000 11,000 15,000 The finished goods units on hand on December 31, 2012, was 2,500 units. Each unit requires 3 pounds of raw materials that are estimated to cost an average of $5 per pound. It is the company's policy to maintain a finished goods inventory at the end of each month equal to 25% of next month's anticipated sales. They also have a policy of maintaining a raw materials inventory at the end of each month equal to 30% of the pounds needed for the following month's production. There were 9,640 pounds of raw materials on hand at December 31, 2012 For the first quarter of 2013, prepare (1) a production budget and (2) a direct materials budget Production anuary February Total Expected Units Sales Desired Ending FG Inv Total required Units Less 12,000 11,000 41,500 FG uired Production Units Direct Materials Budget March Required production Units Direct Materials per unit Total pounds needed for x 3 lbs x 3 lbs x 3 lbs x 3 lbs Desired Ending RM Total RM required Less Beginning RM Direct Materials Purchase Cost per pound Total Cost of Direct Materials 9,640) x $5

Explanation / Answer

Production Budget Jan Feb Mar Apr Total Expeced unit sales 12000 8500 10000 11000 41500 Desired finished goods 2125    [8500*.25] 2500    [10000*.25] 2750   [11000*.25] 3750   [15000*.25] Total required units 14125 11000 12750 14750 less:Finshed FG -2500 -2125 -2500 -2750 Required production units 11625 8875 10250 12000 Direct material budget Jan feb mar april required production unit 11625 8875 10250 12000 Direct material per unit 3 3 3 3 Total pounds needed for production 34875 26625 30750 36000 Desired ending RM 7987.5   [26625*.30] 9225 [30750*.30] 10800   [36000*.30] Total RM required 42862.5 35850 41550 ess:Beginning RM -9640 -7987.5 -9225 Direct material purchase 33222.5 27862.5 32325 cost per pound 5 5 5 Total cost of direct material purchase 166112.5 [33222.5*5] 139312.5 161625

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