Question

The Sun Company manufactures a special line of graphic tubing items. The company estimates it will sell 75,000 units of this item in 2008. The beginning finished goods inventory contains 20,000 units. The target for each year's ending inventory is 10,000 units.
Each unit requires five feet of plastic tubing. The tubing inventory currently includes 70,000 feet of the required tubing. Materials on hand are targeted to equal three month's production. Any shortage in materials will be made up by the immediate purchase of materials. Sales take place evenly throughout the year.

What is the production budget (in units) for 2008?
What are the materials requirements (in feet) for 2008?

Answer 1

Answer:

Instructions are listed below.

Explanation:

Giving the following information:

The company estimates it will sell 75,000 units of this item in 2008. The beginning finished goods inventory contains 20,000 units. The target for each year's ending inventory is 10,000 units.

1) To calculate the budgeted units of production, we need to sum the sales of the period to the desired ending inventory and subtract the beginning inventory.

Production budget= 75,000 + 10,000 - 20,000= 65,000 units

2)

Each unit requires five feet of plastic tubing. The tubing inventory currently includes 70,000 feet of the required tubing. Materials on hand are targeted to equal three month's production.

First, we need to calculate the ending inventory at years end:

ending inventory= (75,000/12)*3= 18,750 units

Purchases= production for the period + ending inventory - beginning inventory

Purchases= 65,000*5 + 18,750*5 - 70,000= 348,750 feet