Question

Croy incorporated has the following projected sales for the next five months: month sales in units april 3,470 may 3,945 june 4,570 july 4,200 august 3,900 croy's finished goods inventory policy is to have 50 percent of the next month's sales on hand at the end of each month. direct materials cost $3.00 per pound, and each unit requires 2 pounds. direct materials inventory policy is to have 50 percent of the next month's production needs on hand at the end of each month. direct materials on hand at march 31 totaled 3,708 pounds. required: determine budgeted production for april, may, and june. determine budgeted cost of direct materials purchased for april and may.

Answer 1

To calculate the budgeted production for April, May, and June at Croy Incorporated, we use the policy of having 50% of the next month's sales as ending inventory, factoring in the beginning inventory which is 50% of the current month's sales.

Step-by-step explanation:

To determine budgeted production for April, May, and June at Croy Incorporated, we follow the finished goods inventory policy which requires 50% of the next month's sales on hand at the end of each month. This means for April, the beginning inventory will be 50% of May’s sales, and the ending inventory will be 50% of June’s sales. Consequently, the formula for budgeted production is:

Budgeted Production = Sales for the Month + Desired Ending Inventory - Beginning Inventory

For April, this is calculated as:

• Desired Ending Inventory for April = 50% of May's sales = 0.5 * 3,945 units = 1,972.5 units (rounded up to 1,973)
• Beginning Inventory for April = 50% of April's sales = 0.5 * 3,470 units = 1,735 units
• Budgeted Production for April = 3,470 (April sales) + 1,973 (Desired ending inventory) - 1,735 (Beginning inventory) = 3,708 units

The same calculations are performed for May and June. To determine the cost of direct materials purchased, we know each unit requires 2 pounds of direct material at $3.00 per pound. The budgeted production quantity for April is used to find how many pounds of material are needed (3,708 units * 2 pounds/unit), and then we add the necessary ending inventory for the material (which is 50% of the following month’s production needs).

The total pounds of material needed for April are:

• Total pounds of material needed for production = 3,708 units * 2 pounds/unit = 7,416 pounds
• Desired ending inventory of material for April (50% of May’s production needs in pounds) = 0.5 * Budgeted Production for May in units * 2 pounds/unit [since we don’t have the exact budgeted production for May, we cannot calculate this value]
• Beginning inventory of material for April = 3,708 pounds

Then, the cost of direct materials purchased is:

• Cost of direct materials purchased = (Total pounds of material needed + Desired ending inventory - Beginning inventory) * $3.00/pound

Without the budgeted production for May, we cannot complete the calculation for the cost of direct materials purchased for April and May. We need the previous calculation's result to carry out the next.