Question

Fuqua Company’s sales budget projects unit sales of part 198Z of 10,000 units in January, 12,000 units in February, and 13,000 units in March. Each unit of part 198Z requires 4 pounds of materials, which cost $2 per pound. Fuqua Company desires its ending raw materials inventory to equal 40% of the next month’s production requirements, and its ending finished goods inventory to equal 20% of the next month’s expected unit sales. These goals were met at December 31, 2019.
Requried:
a. Prepare a projected budget for Jan and Feb 2017.
b. Prepare a direct material budget for Jan 2017.

Answer 1

Answer:

Results are below.

Explanation:

To calculate the production budget for January, we need to use the following formula:

Production= sales + desired ending inventory - beginning inventory

January:

Production= 10,000 + (12,000*0.2)

Production= 12,400 units

February:

Production=  12,000 + 13,000*0.2 - (12,000*0.2)

Production= 12,200

Now, the raw material budget:

Purchases= production + desired ending inventory - beginning inventory

Purchases= 12,400*4 + (12,200*4)*0.4

Purchases= 69,120 pounds

Total cost= 69,120*2= $138,240