Question: Question 3 (12 marks) A sales budget is given below for one of the products manufactured by the Key Co.: January 21,000 units February 36,000
Question 3 (12 marks)
A sales budget is given below for one of the products manufactured by the Key Co.:
January
21,000 units
February
36,000 units
March
61,000 units
April
41,000 units
May
31,000 units
June
25,000 units
The inventory of finished goods at the end of each month should equal 20% of the next month's sales. However, on December 31 the finished goods inventory totalled only 4,000 units.
Each unit of product requires three specialized electrical switches. Since the production of these specialized switches by Key's suppliers is sometimes irregular, the company has a policy of maintaining an ending inventory at the end of each month equal to 30% of the next month's production needs. This requirement had been met on January 1 of the current year.
Required:
Prepare a budget showing the quantity of switches to be purchased each month for January, February, and March and in total for the quarter.
January
February
March
April
Budgeted sales (units)
Add: Desired ending inventory
Total needs
Deduct: Beginning inventory
Units to be produced
January
February
March
Quarter
Units to be produced
Switches per unit
Production needs
Add: Desired ending inventory
Total needs
Deduct: Beginning inventory
Required purchases
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