Based on the production budget, Ratchet Now has a good idea of what it needs to manufacture.
Question:
Based on the production budget, Ratchet Now has a good idea of what it needs to manufacture. It now wants to develop its raw materials budget. It uses 1.5 pounds of steel for each ratchet set at a cost of $0.50 per pound. Opening inventory is 25% of the raw material needs for Quarter 1. The company wants to keep this inventory policy in place, so it plans to have 25% of its next quarter’s needs on hand in ending inventory. Using this information and the information from Exercise 5, develop a raw materials budget. Make sure to note both the quantity of steel it needs to purchase and the amount it needs to use to arrive at the total dollars it needs to budget for in your analysis.
Data from Exercise 5
Ratchet Now makes a ratchet set that is compact for ease of use and storage. It predicts it will sell 100,000 units in Quarter 1,125,000 units in Quarter 2,140,000 units in Quarter 3, and 150,000 units in Quarter 4. It expects that in Quarter 1 of the following year, it will also sell 150,000 units. Opening inventory is 20,000 units. The company wants to retain 20% of the next quarter’s sales on hand as ending inventory. Using this information, develop a production budget for Ratchet Now.
Step by Step Answer:
Managerial Accounting An Integrative Approach
ISBN: 9780999500491
2nd Edition
Authors: C J Mcnair Connoly, Kenneth Merchant