Question

Exercise 21-8 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, 2016. prepare a production budget for january and february 2017. fuqua company production budget january february : :

Answer 1

January:

we start with expected sales (10,000 units) and then we must add ending inventory (20% of February's expected sales = 12,000 x 20% = 2,400) minus beginning inventory of finished parts (20% of January's expected sales = 10,000 x 20% = 2,000).

= 10,000 + 2,400 - 2,000 = 10,400 units

February:

again we start with expected sales (12,000 units) and then we must add ending inventory (20% of March's expected sales = 13,000 x 20% = 2,600) minus beginning inventory of finished parts (2,400 from January).

= 12,000 + 2,600 - 2,400 = 12,200 units

production budget finished 198z parts

January February

Expected sales in units 10,000 12,000

+ ending inventory 2,400 2,600

subtotal 12,400 14,600

- beginning inventory (2,000) (2,400)

required production units 10,400 12,200