PROBLEM 914 Production and Direct Materials Purchases Budget

PROBLEM 9-14 Production and Direct Materials Purchases Budgets [LO2] Franklin Products Limited manufactures and distributes a number of products to retailers. One of these products, SuperStick, requires four kilograms of material D236 in the manufacture of each unit. The company is now planning raw materials needs for the third quarter-July, August, and September. Peak sales of SuperStick occur in the third quarter of each year. To keep production and shipments moving smoothly, the company has the following inventory requirements a. The finished goods inventory on hand at the end of each month must be equal to 8,000 units plus 20% of the next month\'s sales. The finished goods inventory on June 30 is budgeted to be 22,000 units. 81 b. The raw materials inventory on hand at the end of each month must be equal to 40% of the following month\'s production needs for raw materials. The raw materials inventory on June 30 for material D236 is budgeted to be 129,000 kilograms. c. The company maintains no work in process inventories. A sales budget for SuperStick for the last six months of the year follows: Budgoted Sales in Units Juy 5,000 105,000 53,000 30000 5,000 September.... Required: 1. Prepare a production budget for SuperStick for July, August, September, and October. 2. Examine the production budget that you prepared. Why will the company produce more units than it sells in July and August and fewer units than it sells in September and October? 3. Prepare a direct materials purchases budget showing the quantity of material D236 to be purchased for July, August, and September and for the quarter in total. PROBLEM 9-15 Direct Materials Purchases and Direct Labour Budgets [L02]

Solution

Notes:

- Closing stock of previous month will be opening stock of suceeding month

B. Company sells less unit than it produces in July and August and Vice Vera for September and October. Reason behind it is that closing stock of company includes a component of sales (i.e 20% of sales of next month) so, in crux if sale of the next month is higher than the clsoing stock of the previous month will be higher as well and so the production of the previous month.

Now, Since closing stock of preceeding month is opening stock of suceeding month production of suceeding month will be less.

C.

Notes:

-Closing stock of previous month will be opening stock of suceeding month

A)	Franklin Products Limited
	Production Budget
	July	August	September	October
Sales During the Month	60000	75000	105000	53000
Add: Closing Stock	23000	29000	18600	14000
Less: Opening Stock	22000	23000	29000	18600
Required Production	61000	81000	94600	48400