Streeter Company produces plastic microwave turntables. Sales for the next year are expected to be 65,000 units in the first quarter, 72,000 units in the second quarter, 84,000 units in the third quarter and 66,000 units in the fourth quarter. Streeter usually maintains a finished goods inventory at the end of each quarter equal to one half of the units expected to be sold in the next quarter.
Due to a work stoppage, the finished goods inventory at the end of the first quarter is 8,000 units less than it should be. How many units should Streeter produce in the second quarter?
Answer (D) is correct. Streeter’s required production for the second quarter can be calculated as follows: Sales for quarter Add: buffer for next quarter (84,000 × 50%) 42,000 Less: buffer from previous quarter (72,000 × 50%) (36,000) Projected production 78,000 Add: shortfall from previous month buffer 8,000 Revised required production 86,000
Tyler Company produces one product and budgeted 220,000 units for the month of August with the following budgeted manufacturing costs:
Cost Per Unit
Batch set-up cost
The variable cost per unit and the total fixed costs are unchanged within a production range of 200,000 to 300,000 units per month. The total for the batch set-up cost in any month depends on the number of production batches that Tyler runs. A normal batch consists of 50,000 units unless production requires less volume. In the prior year, Tyler experienced a mixture of monthly batch sizes of 42,000 units, 45,000 units, and 50,000 units. Tyler consistently plans production each month in order to minimize the number of batches. For the month of September, Tyler plans to manufacture 260,000 units. What will be Tyler’s total budgeted production costs for September?
Answer (B) is correct. Since variable costs are constant across the relevant range, the total variable cost for September will be $1,664,000 (260,000 units × $6.40). Since the normal production run is 50,000 units, and no indication is given that Tyler’s machinery can handle a larger run, we can conclude that five batches were needed in August (220,000 units total production ÷ 50,000 units per batch = 4.4 batches). The setup cost for a batch must therefore be $176,000 ($880,000 ÷ 5 setups). Six setups will be required for September (260,000 units total production ÷ 50,000 units per batch = 5.2 batches), for a total of $1,056,000 in setup costs ($176,000 × 6 setups). Fixed costs of $1,210,000 are unchanging within the relevant range. Total budgeted production costs for September are therefore: Variable costs $1,664,000 Batch set-up cost 1,056,000 Fixed costs 1,210,000 Total $3,930,000
Ming Company has budgeted sales at 6,300 units for the next fiscal year and desires to have 590 good units on hand at the end of that year. Beginning inventory is 470 units. Ming has found from past experience that 10% of all units produced do not pass final inspection and therefore must be destroyed. How many units should Ming plan to produce in the next fiscal year? A. B. C. D.
Answer (C) is correct. Ming’s required production for the year can be calculated as follows: Projected sales 6,300 Add: projected ending inventory 590 Less: beginning inventory (470) Production 6,420 Since 10% of all units produced do not pass inspection, Ming must produce 7,133 units (6,420 ÷ 90%).
Savior Corporation assembles backup tape drive systems for home microcomputers. For the first quarter, the budget for sales is 67,500 units. Savior will finish the fourth quarter of last year with an inventory of 3,500 units, of which 200 are obsolete. The target ending inventory is 10 days of sales (based upon 360 days). What is the budgeted production for the first quarter?
Answer (B) is correct.
The 67,500 of sales for the quarter average 750 per day for 90 days. Thus, production for
the quarter can be calculated as follows:
Budgeted sales 67,500
Add: required ending inventory (750 × 10 days) 7,500
Total units needed 75,000
Less: beginning inventory (3,500 – 200) (3,300)
Budgeted production 71,700
Data regarding Rombo Company’s budget are shown below
$2.50 per pound
3 hours per unit
Direct labor rate
$7 per hour
Finished goods beginning inventory
Finished goods ending inventory
Direct materials beginning inventory
Direct materials ending inventory
Materials used per unit
Rombo Company’s production budget will show total units to be produced of
Answer (A) is correct.
Rombo’s required production for the year can be calculated as follows:
Sales for year 4,000
Add: ending finished goods inventory 600
Less: beginning finished goods inventory (900)
Required production 3,700
Swan Company is a maker of men’s slacks. The company would like to maintain
20,000 yards of fabric in ending inventory. The beginning fabric inventory is expected to contain
25,000 yards. The expected yards of fabric needed for sales is 90,000. Compute the yards of fabric
that Swan needs to purchase.
Answer (A) is correct.
Swan’s fabric purchase requirements can be calculated as follows:
Needed for sales 90,000
Add: ending inventory 20,000
Less: beginning inventory (25,000)
Total purchases 85,000
Manoli Gift Shop maintains a 35% gross profit percentage on sales and carries an
ending inventory balance each month sufficient to support 30% of the next month’s expected sales.
Anticipated sales for the fourth quarter are as follows:
What amount of goods should Manoli Gift Shop plan to purchase during the month of November?
Answer (A) is correct.
Manoli’s sales and ending inventory requirements at cost can be calculated as follows:
Projected Cost Sales
Sales % At Cost
October: $42,000 × 65% = $27,300
November: 58,000 × 65% = 37,700
December: 74,000 × 65% = 48,100
November’s purchase requirements can now be determined:
Needed for sales $37,700
Add: required ending inventory ($48,100 × 30%) 14,430
Less: projected beginning inventory ($37,700 × 30%) (11,310)
Total purchases $40,820
"In preparing the direct material purchases budget for next quarter, the plant controller
has the following information available:"
Budgeted unit sales
Pounds of materials per unit
Cost of materials per pound
Pounds of materials on hand
Finished units on hand
Target ending units inventory
Target ending inventory of pounds of materials
How many pounds of materials must be purchased?
Answer (C) is correct.
The calculation of pounds of raw material needed to be purchased is as follows:
Budgeted unit sales 2,000
Add: required finished goods ending inventory 325
Less: beginning finished goods inventory (250)
Required production 2,075
Times: pounds per unit × 4
Pounds required for production 8,300
Add: target ending raw materials inventory 800
Less: beginning raw materials inventory (400)
Pounds to be purchased 8,700
Playtime Toys estimates that it will sell 200,000 dolls during the coming year. The
beginning inventory is 12,000 dolls; the target ending inventory is 15,000 dolls.
Each doll requires two shoes, which are purchased from an outside supplier. The
beginning inventory of shoes is 20,000; the target ending inventory is 18,000 shoes.
The number of shoes that should be purchased during the year is
Answer (D) is correct.
The calculation of the number of shoes that must be purchased is as
Shoes needed for dolls to be sold 400,000
Less: beginning inventory of shoes on dolls (24,000)
Add: target ending inventory of shoes on dolls 30,000
Less: beginning inventory of shoes (20,000)
Add: target ending inventory of shoes 18,000
Shoes to be purchased 404,000
True Form Toys is in the process of preparing budgets for the upcoming period. True Form
manufactures wooden toy trucks. Sales vary significantly, peaking in the holiday season.
Management wishes to maintain an ending inventory equal to 20% of the next month’s
sales. Following is True Form Toy’s anticipated sales for the upcoming period.
October 2,000 toy trucks
November 2,500 toy trucks
December 8,500 toy trucks
January 1,200 toy trucks
February 850 toy trucks
How many trucks should True Form Toys manufacture in November?
Answer (C) is correct.
November truck production can be calculated using the following
formula: Beginning inventory + Production – Sales = Ending inventory.
Beginning inventory can be determined by finding the last month’s
ending inventory. October ending inventory is equal to 20% of
November sales, which is 500 (2,500 × 20%). November ending
inventory is equal to 20% of December sales, which is 1,700 (8,500 × 20%). Using the above formula, we can determine that November truck
production is 3,700 (1,700 + 2,500 – 500).