Reference: 20_04
Kyoto, Inc. predicts the following sales in units for the coming four months:
$\begin{array}{llr}
&\text { April}&\text { May}&\text { June}&\text { July }\
\text { Sales in units } &240&280&300&240\
\end{array}$
Although each month's ending inventory of finished units should be 60% of the next month's sales, the March 31 finished goods inventory is only 100 units. A finished unit requires five pounds of raw material B. The March 31 raw materials inventory has 200 pounds of B. Each month's ending inventory of raw materials should be 30% of the following month's production needs.
-Kyoto's budgeted production for the second quarter is:
A) 820 units
B) 864units
C) 492 units
D) 449 units
E) 878 units

Question

Reference: 20_04
Kyoto, Inc. predicts the following sales in units for the coming four months:
 $\begin{array}{llr}
&\text { April}&\text { May}&\text { June}&\text { July }\
\text { Sales in units } &240&280&300&240\
\end{array}$
 Although each month's ending inventory of finished units should be 60% of the next month's sales, the March 31 finished goods inventory is only 100 units. A finished unit requires five pounds of raw material B. The March 31 raw materials inventory has 200 pounds of B. Each month's ending inventory of raw materials should be 30% of the following month's production needs.
-Kyoto's budgeted production for the second quarter is:
A) 820 units
B) 864units
C) 492 units
D) 449 units
E) 878 units

Quizplus · Accepted Answer

To calculate the budgeted production, we need to start with the required sales for each month and calculate the required production for each month by adjusting for the desired ending finished goods inventory.

Sales (units):
April: 1,200
May: 1,320 (1,200 x 1.1)
June: 1,452 (1,320 x 1.1)
July: 1,597.2 (1,452 x 1.1)

Desired ending finished goods inventory (units):
April: 792 (1,320 x 0.6)
May: 871.2 (1,452 x 0.6)
June: 958.9 (1,597.2 x 0.6)
July: 1,054.7 (1,757.8 x 0.6)

Required production (units):
April: 1,032 (1,200 + 792 - 100)
May: 1,143.2 (1,320 + 871.2 - 792)
June: 1,259.7 (1,452 + 958.9 - 871.2)
July: 1,384.3 (1,597.2 + 1,054.7 - 958.9)

Note that we subtract the beginning finished goods inventory from the required production to get the production needed to meet sales and ending inventory requirements.

Next, we need to calculate the required raw material B for each month by adjusting for the desired ending raw material B inventory.

Raw material B required (pounds):
April: 5,160 (1,032 x 5)
May: 5,702.2 (1,143.2 x 5)
June: 6,272.9 (1,259.7 x 5)
July: 6,870.3 (1,384.3 x 5)

Desired ending raw material B inventory (pounds):
April: 1,548 (5,160 x 0.3)
May: 1,710.7 (5,702.2 x 0.3)
June: 1,881.9 (6,272.9 x 0.3)
July: 2,070.9 (6,870.3 x 0.3)

Raw material B needed for production (pounds):
April: 3,612 (5,160 - 1,548 + 200)
May: 4,012.5 (5,702.2 - 1,710.7 + 1,548)
June: 4,420.2 (6,272.9 - 1,881.9 + 1,710.7)
July: 4,862.3 (6,870.3 - 2,070.9 + 1,881.9)

Note that we add the beginning raw material B inventory and subtract the desired ending raw material B inventory to get the raw material B needed for production.

Therefore, the budgeted production for the second quarter is 1,032 + 1,143.2 + 1,259.7 + 1,384.3 = 4,819.2 units, or approximately 4,819 units.

The closest answer choice is B) 864 units.

Reference: 20_04 Kyoto, Inc April May June July Sales in units 240280300240\begin{array}{llr}&\text { April}&\text { May}&\text { June}&\text { July }\\\text { Sales in units } &240&280&300&240\\\end{array} Sales in units ​ April240​ May280​ June300​ July 240​

Reference: 20_04
Kyoto, Inc $\begin{array}{llr}&\text { April}&\text { May}&\text { June}&\text { July }\\\text { Sales in units } &240&280&300&240\\\end{array}$