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Math Help - Managerial Accounting Help, Simple question but stumped..

  1. #1
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    Managerial Accounting Help, Simple question but stumped..

    Hey Guys,

    Ive been trying to figure out one little part of this question to no avail, maybe you folks could shed some light on this...

    Exercise 19-36 PRODUCTION BUDGET AND DIRECT MATERIALS
    PURCHASES BUDGETS
    Seafood Inc. produces shrimp in cans. The sales budget for the first four months of the year is as follows:


    January February March April
    Unit Sales
    200,000 240,000 220,000 200,000
    Dollar Sales ($)
    150,000 180,000 165,000 150,000
    Company policy requires that ending inventories for each month be 35 percent of next month’s sales. At the beginning of January, the inventory of shrimp is 36,000 cans.
    Each can of shrimp needs two raw materials: four ounces of shrimp and one can. Company policy requires that ending inventories of raw materials for each month be 20 percent of the next month’s production needs. That policy was met on January 1.
    Required:
    1. Prepare a production budget for the first quarter of the year. Show the number of cans that should be produced each month as well as for the quarter in total.
    2. Prepare separate direct materials purchases budgets for cans and for shrimp for the months of January and February.

    I need help with number 2, how do you find the Beginning inventory for the direct materials budget?
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  2. #2
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    Re: Managerial Accounting Help, Simple question but stumped..

    Quote Originally Posted by vs72010 View Post
    January February March April
    Unit Sales
    200,000 240,000 220,000 200,000
    Dollar Sales ($)
    150,000 180,000 165,000 150,000
    Company policy requires that ending inventories for each month be 35 percent of next month’s sales. At the beginning of January, the inventory of shrimp is 36,000 cans.
    35% of 200,000 = 70,000
    If it's policy to have 35%, why is the actual only 36,000 ?

    End of Jan (for Feb): 35% of 240,000 = 84,000
    -36,000 + 200,000 + 84,000 = 248,000
    So 248,000 units must be produced during Jan ?
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  3. #3
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    Re: Managerial Accounting Help, Simple question but stumped..

    Hi Wilmer

    The answer is actually below.....

    Exercise 9–36
    1. Seafood, Inc.
    Production Budget
    For the First Quarter of the Year

    January February March Total

    Sales 200,000 240,000 220,000 660,000
    Desired ending inventory 84,000 77,000 70,000 70,000
    Total needs 284,000 317,000 290,000 730,000
    Less: Beginning inventory 36,000 84,000 77,000 36,000
    Units produced 248,000 233,000 213,000 694,000

    2. Seafood, Inc.
    Direct Materials Purchases Budget
    For January and February

    Cans:
    January February Total

    Production 248,000 233,000 481,000
    × 1 can × 1 × 1 × 1
    Cans for production 248,000 233,000 481,000
    Desired ending inventory 46,600 42,600 42,600
    Total needs 294,600 275,600 523,600
    Less: Beginning inventory 49,600 46,600 49,600
    Cans purchased 245,000 229,000 474,000

    Shrimp:
    January February Total

    Production 248,000 233,000 481,000
    × 4 ounces × 4 × 4 × 4
    Ounces for production 992,000 932,000 1,924,000
    Desired ending inventory 186,400 170,400 170,400
    Total needs 1,178,400 1,102,400 2,094,400
    Less: Beginning inventory 198,400 186,400 198,400
    Ounces purchased 980,000 916,000 1,896,000


    I dont understand where the 49600, or the 198400 came from, or how we come to that answer...
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