Question

A firm has the following forecast information for sales of Product X: April 15,000 units May 17,000 units June 19,000 units July 18,000 units Product X sells for $3 per unit. Half of the firm's sales are for cash and the other half is on account. Credit sales are collected in the following pattern: 60% in the month of sale, 30% in the month following sale, and 5% in the second month following sale (the remainder are uncollectible). If the firm targets its ending inventories to be 25% of the following month's sales, what are the budgeted purchases (in units) for June

Answer 1

Answer:

18,750 units

Explanation:

A firm has the following forecast information for sales of Product X:

April 15,000 units

May 17,000 units

June 19,000 units

July 18,000 units Product X sells for $3 per unit.

Half of the firm's sales are for cash and the other half is on account.

Credit sales are collected in the following pattern: 60% in the month of sale, 30% in the month following sale, and 5% in the second month following sale (the remainder are uncollectible).

If the firm targets its ending inventories to be 25% of the following month's sales, what are the budgeted purchases (in units) for June .

Purchases Budget = Required production for sales - opening inventory of raw materials + closing inventory of raw materials = Raw materials required

June's Production Budget

Required production for sales = .............................................19,000 units

less: Beginning inventory (25% of June's sales) =............... 4,750 units

Add: Required Ending Inventory (25% of July's sales) = ...4,500 units

Raw materials required for purchase in June =.................. 18,750 units

Answer 2

Answer:

18,750 units

Explanation:

the firm estimates in monthly ending inventories at 25% of next month's sales:

ending inventory May = 19,000 x 25% = 4,750 units

units sold during June = 19,000 units

ending inventory June = 18,000 x 25% = 4,500 units

total purchases for June = 19,000 + 4,500 - 4,750 = 18,750 units

Sales forecast:

month     units sold     price p/ unit     total sales      cash          credit

April        15,000                $3               $45,000      $22,500    $13,500

May        17,000                 $3               $51,000       $25,500    $22,050

June       19,000                $3                $57,000      $28,500    $25,875

July         18,000                $3                $54,000     $27,000    $26,025