Question

Next year's sales forecast shows that 20,000 units of Product A and 22,000 units of Product B are going to be sold for prices of $10 and $12 per unit, respectively. The desired ending inventory of Product A is 20% higher that its beginning inventory of 2,000 units. the beginning inventory of Product B is 2,500 units. The desired ending inventory of B is 3,000.
(A) Total budgeted sales of both products for the year would be:

a. $264,000
b. $42,000
c. $464,000
d. $200,000

(B) Budgeted purchases of Product A for the year would be:

a. 22,400 units
b. 12,200 units
c. 20,400 units
d. 20,000 units

(C) Budgeted purchases of Product B for the year would be:

a. 24,500 units
b. 23,200 units
c. 26,500 units
d. 22,500 units

Answer 1

Answer:

(A) c. $464,000

(B) c. 20,400 units

(C) d. 22,500 units

Explanation:

a. The computation of the total budgeted sales of both products is shown below:

= Product A sales units × selling price per unit + Product B sales units × selling price per unit

= 20,000 units × $10 + 22,000 units × $12

= $200,000 + $264,000

= $464,000

b. For computing the budgeted purchase, first we need to find out the ending inventory which is shown below:

Ending inventory = Beginning inventory + (Beginning inventory × increase rate)

= 2,000 units + 2,000 units × 20%

= 2,000 units + 400 units

= 2,400 units

Now the budgeted production would be equal to

= Foretasted sales + ending inventory -  Beginning inventory

=  20,000 units + 2,400 - 2,000 units

= 20,400 units

(C) The computation of the budgeted production is shown below:

= Foretasted sales + ending inventory -  Beginning inventory

=  22,000 units + 3,000 - 2,500 units

= 22,500 units