Question

ABC Company’s budgeted sales for June, July, and August are 15,600, 19,600, and 17,600 units, respectively. ABC requires 30% of the next month’s budgeted unit sales as finished goods inventory each month. Budgeted ending finished goods inventory for May is 4,680 units. Each unit that ABC Company produces uses 3 pounds of raw material. ABC requires 25% of the next month’s budgeted production as raw material inventory each month.

Answer 1

The question asks for calculations related to budgeted production and inventory planning for ABC Company, referencing percentage requirements and sales projections. It also includes related information on economies of scale, emphasizing cost efficiency in manufacturing.

Step-by-step explanation:

The question involves budgeted production calculations for a company over a three month period. It requires us to determine the necessary levels of finished goods and raw material inventories based on given percentage requirements and sales projections. The question also indirectly touches on concepts related to economies of scale, which is well-illustrated by the example involving different factory sizes and their respective average production costs for alarm clocks. Understanding how average costs fall as production scales up is crucial for businesses to optimize their output and cost strategies.

Although the provided economic examples do not directly apply to the specific calculation problem of ABC Company, they highlight the importance of cost considerations in manufacturing that must be understood when making production decisions. The situational problem for ABC Company involves applying production and inventory formulas to project future inventory requirements, and ensuring raw materials are available to meet those production needs.

Answer 2

= $52,050

Step-by-step explanation:

First, the question is as follows:

Calculate the number of pounds of raw material to be purchased in June

Solution

Step One: We determine what was produced in June and in July as follows

Budgeted Production = Budgeted sales + The desired closing inventory of finished products - the estimated opening inventory of finished products

• Budgeted Production in June= $15,600 + (0.3 x 19,600) - $4,680 (This is the ending inventory figure from May) = $16,800

• Budgeted Production in July= $19,600 - (17,600 units x 0.3)- $5,880 (this is the opening inventory calculated for June above) = $19,000

Step 2 : Determine the Purchased raw materials for June

• = (Production in June x 3) + Production in July x 3 x 0.25) - (Production in June x 3 x 0.25)

= 50,400 + $14,250 - $12,600 = $52,050