Chapter 8, Problem 6F15

To determine

Concept Introduction:

Budgets:

Budgets are prepared to estimate the revenue, costs, receipts and payments for the business. There are several types of budgets prepared for a manufacturing concern. Few major types of budgets prepared by each manufacturing concert are as follows:

1. Sales budget
2. Cash Collection budget
3. Production budget
4. Raw material purchase budget
5. Cash disbursement budget

Production Budget:

The Production budget is prepared after preparing the sales budget to estimate the number of units of finished goods to be produced. The formula for calculation for production units is as follows:

  $\begin{array}{l}Productionunits=BudgetedUnitSales+DesiredEndingFinishedGoodsInventory\\ -BeginningFinishedGoodsInventory\end{array}$

Raw Material Purchase Budget:

The Raw Material Purchase Budget is prepared after preparing the production budget to estimate the amount of Raw materials to be purchased. The formula for calculation for Raw material purchase is as follows:

  $\begin{array}{l}RawMaterialPurchase\left(Pounds\right)=Rawmaterialproductionneed+DesiredEndingRawmaterialInventory\\ -BeginningRawmaterialsInventory\end{array}$

  $CostofRawMaterialpurchase=Rawmaterialpurchase\left(pounds\right)\times Rawmaterialcostperpound$

The Cost of Raw Material Purchases for July