ABC Inc has compiled the following data in order to put toge

ABC Inc. has compiled the following data in order to put together their first quarter operating budget for 20XX:

January

February

March

April

Sales (units)

            50,000

            55,000

            40,000

            30,000

Additional information:

ABC sells each unit for $200.

Company policy is to have 30% of next month’s sales (in units) in ending finished goods inventory. This policy was met in December.

Company policy is to have 25% of next month’s production needs in ending raw materials inventory. The production needs for April is 120,000. This policy was met in December.

It takes four pounds of material to produce each unit and the cost is $5.00/pound.

Required:

1. Prepare a sales budget for the January, February and March and for the first quarter in total.

2. Prepare a production budget for January, February and March and for the first quarter in total.

3. Prepare a direct materials purchases budget for January, February and March and for the first quarter in total.

	January	February	March	April
Sales (units)	50,000	55,000	40,000	30,000

Solution

Sales Budget January February March Quarter Budgeted sales in units 50000 55000 40000 145000 Sales price $200 $200 $200 $200 Total sales $10,000,000 $11,000,000 $8,000,000 $29,000,000 Production Budget January February March Quarter April Budgeted sales in units 50000 55000 40000 145000 30000 Add Desired Finished Goods Inventory (30%*next month budgeted sales) 16500 12000 9000 9000 Total Needs 66500 67000 49000 154000 Less Beginning Inventory 15000 16500 12000 15000 (50000*30%) Required Production 51500 50500 37000 139000 Purchase Budget January February March Quarter April Required production (units) 51500 50500 37000 139000 Raw materials required to produce one unit 4 4 4 4 Production needs (pounds) P 206000 202000 148000 556000 120000 Add desired ending inventory of raw materials (pounds) (P*25%) 50500 37000 30000 30000 Total needs (pounds) 256500 239000 178000 586000 Less beginning inventory of raw materials (pounds) 59750 50500 37000 59750 Raw materials to be purchased 196750 188500 141000 526250 Cost of raw materials per pound $5 $5 $5 $5 Cost of raw materials to be purchased $983,750 $942,500 $705,000 $2,631,250 If any doubt please comment