PROBLEM 02: Production and Direct material Budget Tonga Toys manufactures and distributes a number of products to retailers. One of these products, Playclay, requires three pounds of material A135 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 Playclay 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 5,000 units plus 30% of the next month's sales. The finished goods inventory on June 30 is budgeted to be 17,000 units. b. The raw materials inventory on hand at the end of each month must be equal to one-half of the following month's production needs for raw materials. The raw materials inventory on June 30 for material A135 is budgeted to be 64,500 pounds. August September 70,000 Particulars November December July 40,000 October Budgeted sales (units) 50,000 35,000 20,000 10,000 REQUIREMENTS: 1. Prepare a production budget for Playclay for the months 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 less units than it sells in September and October? 3. Prepare a direct materials budget showing the quantity of material A135 to be purchased for July August, and September and for the quarter in total.
PROBLEM 02: Production and Direct material Budget Tonga Toys manufactures and distributes a number of products to retailers. One of these products, Playclay, requires three pounds of material A135 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 Playclay 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 5,000 units plus 30% of the next month's sales. The finished goods inventory on June 30 is budgeted to be 17,000 units. b. The raw materials inventory on hand at the end of each month must be equal to one-half of the following month's production needs for raw materials. The raw materials inventory on June 30 for material A135 is budgeted to be 64,500 pounds. August September 70,000 Particulars November December July 40,000 October Budgeted sales (units) 50,000 35,000 20,000 10,000 REQUIREMENTS: 1. Prepare a production budget for Playclay for the months 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 less units than it sells in September and October? 3. Prepare a direct materials budget showing the quantity of material A135 to be purchased for July August, and September and for the quarter in total.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Question
Transcribed Image Text:PROBLEM 02: Production and Direct material Budget
Tonga Toys manufactures and distributes a number of products to retailers. One of these
products, Playclay, requires three pounds of material A135 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 Playclay 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 5,000 units
plus 30% of the next month's sales. The finished goods inventory on June 30 is budgeted to be
17,000 units.
b. The raw materials inventory on hand at the end of each month must be equal to one-half of the
following month's production needs for raw materials. The raw materials inventory on June 30
for material A135 is budgeted to be 64,500 pounds.
August September
50,000
Particulars
November December
July
40,000
October
Budgeted sales (units)
70,000
35,000
20,000
10,000
REQUIREMENTS:
1. Prepare a production budget for Playclay for the months 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 less units than it sells in September and October?
3. Prepare a direct materials budget showing the quantity of material A135 to be purchased for
July August, and September and for the quarter in total.
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