Asked by Lorena Dalipaj on May 20, 2024
Verified
Sleeter Corporation makes one product and it provided the following information to help prepare the master budget for the next four months of operations:Budgeted unit sales for April, May, June, and July are 7,500, 11,900, 10,800, and 14,800 units, respectively. All sales are on credit.The ending finished goods inventory equals 30% of the following month's sales.The ending raw materials inventory equals 30% of the following month's raw materials production needs. Each unit of finished goods requires 6 pounds of raw materials. The raw materials cost $5.00 per pound.If 72,000 pounds of raw materials are required for production in June, then the budgeted cost of raw material purchases for May is closest to:
A) $559,230
B) $455,100
C) $350,970
D) $347,100
Master Budget
A comprehensive financial planning document that includes all of a company’s budgets and financial plans, consolidating them into an overall budget.
Raw Materials
Raw materials are the basic, unprocessed inputs used in the manufacture of products.
Finished Goods Inventory
The stock of completed products that are ready to be sold but have not yet been sold.
- Comprehend the formation and framework of different types of budgets, including sales, manufacturing overhead, cash, direct materials, and production budgets.
- Determine the costs associated with direct labor and the procurement of raw materials during the budgeting cycle.
Verified Answer
April: 7,500 units x 6 pounds per unit = 45,000 pounds
May: 11,900 units x 6 pounds per unit = 71,400 pounds
June: 10,800 units x 6 pounds per unit = 64,800 pounds
July: 14,800 units x 6 pounds per unit = 88,800 pounds
Then, we need to multiply each month's total raw materials needed by 30% to find the ending raw materials inventory for the previous month:
March (for April): 45,000 x 0.3 = 13,500 pounds
April (for May): 71,400 x 0.3 = 21,420 pounds
May (for June): 64,800 x 0.3 = 19,440 pounds
June (for July): 88,800 x 0.3 = 26,640 pounds
To find the budgeted raw materials purchases for May, we need to subtract the May raw materials inventory from the June raw materials production needs:
Raw materials needed for production in June: 72,000 pounds
Raw materials inventory at the end of May: 21,420 pounds
Raw materials purchases for May: 72,000 - 21,420 = 50,580 pounds
The cost of raw materials is $5.00 per pound, so the budgeted cost of raw material purchases for May is:
$5.00 per pound x 50,580 pounds = $252,900
However, we need to remember that we're looking for the closest answer choice. The closest answer choice to $252,900 is $350,970, which is answer choice C.
Learning Objectives
- Comprehend the formation and framework of different types of budgets, including sales, manufacturing overhead, cash, direct materials, and production budgets.
- Determine the costs associated with direct labor and the procurement of raw materials during the budgeting cycle.
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