A company has provided a sales budget for the next four months.It bases its production budget on the sales budget, and has a policy that each month's ending inventory of finished product must be equal to 25% of the following month's sales needs.The direct materials purchases budget is based on the production budget.The company's policy for each month's ending inventory of raw materials is that they must be equal to 10% of the following month's production needs for raw materials.Given this information, the company can prepare direct materials purchases budgets for how many months?

Question

Quizplus · Accepted Answer

Four months of sales budgets allows the calculation of three months of production budgets.The fourth month is impossible without the fifth month of sales to figure the desired ending inventory for month four.Similarly, three months of production budgets allows calculation for two months worth of direct materials purchases budgets.The third month is impossible without the fourth month of production to figure the desired ending inventory for month three.

A Company Has Provided a Sales Budget for the Next