Accounting: What the Numbers Mean 11th Edition by Wayne McManus,Daniel Viele,David Marshall

Exercise 11

Production and purchases budgets Osage, Inc., has actual sales for May and June and forecast sales for July, August, September, and October as follows:

Required:
a. The firm's policy is to have finished goods inventory on hand at the end of the month that is equal to 70% of the next month's sales. It is currently estimated that there will be 4,000 units on hand at the end of June. Calculate the number of units to be produced in each of the months of July, August, and September.
b. Each unit of finished product requires 6.5 pounds of raw materials. The firm's policy is to have raw material inventory on hand at the end of each month that is equal to 60% of the next month's estimated usage. It is currently estimated that 26,000 pounds of raw materials will be on hand at the end of June. Calculate the number of pounds of raw materials to be purchased in each of the months of July and August.