Sevenbergen Corporation makes one product and has provided the following information to help prepare the master budget for the next four months of operations: Credit sales are collected:40% in the month of the sale60% in the following monthRaw materials purchases are paid:30% in the month of purchase70% in the following monthThe ending finished goods inventory should equal 20% of the following month's sales. The ending raw materials inventory should equal 30% of the following month's raw materials production needs.The budgeted required production for August is closest to:

Question

Sevenbergen Corporation makes one product and has provided the following information to help prepare the master budget for the next four months of operations:  Credit sales are collected:40% in the month of the sale60% in the following monthRaw materials purchases are paid:30% in the month of purchase70% in the following monthThe ending finished goods inventory should equal 20% of the following month's sales. The ending raw materials inventory should equal 30% of the following month's raw materials production needs.The budgeted required production for August is closest to:

Quizplus · Accepted Answer

To determine the required production for August, we need to first calculate the budgeted sales for September (since the ending finished goods inventory should equal 20% of the following month's sales).

Let's assume that the company sells X units in August. Then, the budgeted sales for September would be:

September Sales = X * 1.2

Assuming that credit sales are collected 40% in the month of the sale and 60% in the following month, the budgeted cash collections for September would be:

Cash Collections for September = (0.4 * August Sales) + (0.6 * September Sales)

Next, we need to calculate the budgeted raw materials production needs for September (since the ending raw materials inventory should equal 30% of the following month's needs).

Assuming that the company uses Y units of raw materials to produce X units of finished goods, the budgeted raw materials production needs for September would be:

September Raw Materials Production Needs = Y * (1.2 * X) + 0.3 * September Raw Materials Production Needs

Simplifying this equation, we get:

0.7 * September Raw Materials Production Needs = 1.2 * Y * X

September Raw Materials Production Needs = (1.2 * Y * X) / 0.7

Finally, we can calculate the budgeted production for August by taking into account the desired ending finished goods inventory and the expected sales for August:

August Production = X + 0.2 * (1.2 * X) - Ending Finished Goods Inventory

where Ending Finished Goods Inventory = Budgeted Sales for September * 0.2

Substituting the values we calculated earlier, we get:

August Production = X + 0.24X - (0.12 * 1.2 * X)

Simplifying this equation, we get:

August Production = X * (1 + 0.24 - 0.144)

August Production = X * 1.096

Therefore, the budgeted required production for August is closest to:

August Production = X = Budgeted Sales for August / 1.096

Assuming that the budgeted sales for August are 12,000 units, we get:

August Production = 12,000 / 1.096 = 10,936 units

Since the answer choices are not exact, the closest answer is D) 11,120 units.

Sevenbergen Corporation Makes One Product and Has Provided the Following