2) Preston Manufacturing procedures self-watering planters for use in upscale re

Question

2) Preston Manufacturing procedures self-watering planters for use in upscale retail establishments. Sales projections for the first five months of the upcoming year shows the estimated unit sales of the planters each month to be as follows: Number of planters to be sold January………………………………………………………………………………………………………… 3,300 February………………………………………………………………………………………………………… 3,100 March…………………………………………………………………………………………………………… 3,500 April………………………………………………………………………………………………………………… 4,800 May…………………………………………………………………………………………………………………. 4,600 Inventory at the start of the year was 330 planters. The desired inventory of planters at the end of each month should be equal to 10% of the following month’s budgeted sales. Each planter requires four pounds of polypropylene (a type of plastic). The company wants to have 30% of the polypropylene required for the next month’s production on hand at the end of each month. The polypropylene costs $0.30 per pound. Requirements: a. Prepare a production budget for each month in the first quarter of the year, including production in units for each month and for the quarter. b. Prepare a direct material budget for the polypropylene for each month in the first quarter of the year, including the pounds of polypropylene required, and the total cost of the polypropylene to be purchased.

Explanation / Answer

Inventory at the end of the month = 10% of budgeted sales of next month

Beginning Inventory + Production – Ending Inventory = Sales

Thus, Production = Sales - Beginning Inventory + Ending Inventory

With this information, we can prepare the production budget as below:

Month

January

February

March

January to March

A. Beginning inventory

330

310

350

330

B. Budgeted sales

3300

3100

3500

9900

C. Ending Inventory

(10% of next month sales)

310

350

480

480

D. Production

(B+C-A)

3280

3140

3630

10050

Inventory of Polypropylene at the start of April month = 30% * (3280*4 pounds) = 3936 pounds

Polypropylene required for each month = Budgeted production of planters *4 pounds

Polypropylene to be purchased = Polypropylene requirement + Ending inventory – Beginning inventory

Direct Material budget for the polypropylene can be prepared as below:

Month

January

February

March

January to March

A. Budgeted Production of planters

3280

3140

3630

10050

B. Polypropylene required

A*4

13120

12560

14520

40200

C. Beginning Inventory

3936

3768

4356

3936

D. Ending Inventory

30% of next month requirement

3768

4356

5736

5736

E. Polypropylene to be purchased

(B+D-C)

12952

13148

15900

42000

Total quantity of the polypropylene to be purchased = 42000 pounds

Total cost of the polypropylene to be purchased = 42000 pounds * $0.30 = $12,600

Month

January

February

March

January to March

A. Beginning inventory

330

310

350

330

B. Budgeted sales

3300

3100

3500

9900

C. Ending Inventory

(10% of next month sales)

310

350

480

480

D. Production

(B+C-A)

3280

3140

3630

10050

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