Cacophony Electronics produces wireless speakers for outdoor us. Their most popular model is the Extreme and requires four separate EX13 components per unit. Sales of the Extreme are the highest in the second quarter of each year. The company has the following inventory requirements:
a. The finished goods inventory on hand at the end of each month must be equal to 16,000 units plus 10% of the next month’s sales. The finished goods inventory on March 31 is budgeted to be 28,000 units.
b. The raw materials inventory on hand at the end of each month must be equal to 20% of the following month’s production needs for raw materials. The raw materials inventory on March 31 for EX13 is budgeted to be 98,400 components.
c. The company maintains no work in process inventories.
A sales budget for the Extreme speaker in units is as follows:
April 120,000
May 150,000
June 210,000
July 106,000
August 60,000
Required:
1. Prepare a production budget for the Extreme for April, May, June and July.
2. Prepare a direct materials purchases budget showing the quantity of EX13 components to be purchased for April, May and June and for the quarter in total.