How many pounds of material does midwest inc plan

Reference no: EM13175499

1. MidwestInc. manufactures and sells a single product. They are in the process of preparing next quarter's budget and have provided the following data.

	Finished goods inventory, July 1	2,000 units
	Desired finished goods inventory, July 31	2,500 units
	Desired finished goods inventory, August 31	2,400 units
	Projected sales, July	6,000 units
	Projected sales, August	7,500 units
	Raw material required per unit	5 pounds
	Estimated raw material cost	$9 per pound
	Direct labor required per unit	2 hours
	Estimated direct labor rate	$16 per hour
	Factory overhead rate (based on direct labor)	$12 per hour

Company policy is to have enough material on hand at the end of each month to meet 30% of the following month's production needs.

a. How many pounds of material does Midwest Inc. plan to purchase in July?

b. What is the budgeted August 31 finished goods inventory balance (in dollars)?

a.	33,850 pounds
b.	$242,400

Workings:

For a.

Production budget for the month of July & August	July	August

Projected sales	6000	7500
Add: Desired finished goods inventory	2500	2400
Total unit requirements	8500	9900
Less; Beginning finished goods inventory	2000	2500
Production budget, in units for July	6500	7400

Raw materials purchase budget for July	July
Production budgeted in units, for July	6500
x Raw materials required per unit	5	pounds
Production requirement in pounds	32500
Add: Desired ending inventory
(30% x 7400 units x 5 pounds each)	11100
Total raw material requirements	43600
Less: Beginning raw materials
(30% x 6500 units x 5 pounds each)	9750
Raw materials purchases, in pounds	33850	pounds

For b.

Finished goods, in units, at August 31				2400units

Raw materials cost
(2400 units x 5 pounds per unit x $9 per pound)				$ 108,000
Direct labor cost
(2400 units x 2 hours per unit x $16 per hour)				$ 76,800
Factory overhead cost
(2400 units x 2 hours per unit x $12 per hour)				$ 57,600

Finished goods inventory balance, in dollars				$ 242,400
at August 31, budgeted

Reference no: EM13175499

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