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Chapter 20: 20-17QS (page 915)

Forrest Company manufactures phone chargers and has a JIT policy that ending inventory must equal 10% of the next month’s sales. It estimates that October’s actual ending inventory will consist of 40,000 units. November and December sales are estimated to be 400,000 and 350,000 units, respectively. Compute the number of units to be produced for the month of November.

Short Answer

Expert verified

The total number of units to be produced for the month of November will be 405,000 units.

Step by step solution

01

Given the amounts as

Particulars	Amount
Sales for November	400,000 units
Sales for December	350,000 units
Actual ending inventory	40,000 units
Ending inventory	10%

02

Computation of number of units to be produced for the month of November

Particulars	Amount
Budgeted ending inventory	40,000 units
Add: Budgeted sales for the month	400,000 units
Required units of production	440,000 units
Less: Budgeted beginning inventory units	35,000 units
Units to be produced	405,000 units

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Most popular questions from this chapter

Music World reports the following sales forecast: August, \(150,000; and September, \)170,000. Cash sales are normally 40% of total sales and all credit sales are expected to be collected in the month following the date of sale. Prepare a schedule of cash receipts for September.

Ornamental Sculptures Mfg. manufactures garden sculptures. Each sculpture requires 8 pounds of direct materials at a cost of \(3 per pound and 0.5 direct labor hours at a rate of \)18 per hour. Variable manufacturing overhead is charged at a rate of \(3 per direct labor hour. Fixed manufacturing overhead is \)4,000 per month. The company’s policy is to maintain direct materials inventory equal to 20% of the next month’s materials requirement. At the end of February the company had 5,280 pounds of direct materials in inventory. The company’s production budget reports the following. Prepare budgets for March and April for (1) direct materials, (2) direct labor, and (3) factory overhead.

For each of the following items 1 through 5, indicate yes if the item is an important budgeting guideline or no if it is not.

1. Employees should have the opportunity to explain differences from budgeted amounts.

2. Budgets should include budgetary slack.

3. Employees impacted by a budget should be consulted when it is prepared.

4. Goals in a budget should be set low so targets can be reached.

5. Budgetary goals should be attainable.

Question: How does a budget benefit management in its control function?

Use the information in Exercise 20-25 and the following additional information to prepare a budgeted income statement for the month of July and a budgeted balance sheet for July 31.

a. Cost of goods sold is 55% of sales.

b. Inventory at the end of June is \(80,000 and at the end of July is \)60,000.

c. Salaries payable on June 30 are \(50,000 and are expected to be \)60,000 on July 31.

d. The equipment account balance is \(1,600,000 on July 31. On June 30, the accumulated depreciation on equipment is \)280,000.

e. The \(6,600 cash payment of interest represents the 1% monthly expense on a bank loan of \)660,000.

f. Income taxes payable on July 31 are \(30,720, and the income tax rate is 30%.

g. The only other balance sheet accounts are: Common Stock, with a balance of \)600,000 on June 30; and Retained Earnings, with a balance of $964,000 on June 30.

See all solutions

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