A firm has the following forecast information for sales of Product X: April 15,000 units May 17,000 units June 19,000 units July 18,000 units Product X sells for $3 per unit. Half of the firm's sales are for cash and the other half is on account. Credit sales are collected in the following pattern: 60% in the month of sale, 30% in the month following sale, and 5% in the second month following sale (the remainder are uncollectible). If the firm targets its ending inventories to be 25% of the following month's sales, what are the budgeted purchases (in units) for June

Question

Veronica Olsen

Business

4 January, 16:44

A firm has the following forecast information for sales of Product X: April 15,000 units May 17,000 units June 19,000 units July 18,000 units Product X sells for $3 per unit. Half of the firm's sales are for cash and the other half is on account. Credit sales are collected in the following pattern: 60% in the month of sale, 30% in the month following sale, and 5% in the second month following sale (the remainder are uncollectible). If the firm targets its ending inventories to be 25% of the following month's sales, what are the budgeted purchases (in units) for June

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Answers (2)

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Vanessa · Answer 1

18,750 units

Explanation:

the firm estimates in monthly ending inventories at 25% of next month's sales:

ending inventory May = 19,000 x 25% = 4,750 units

units sold during June = 19,000 units

ending inventory June = 18,000 x 25% = 4,500 units

total purchases for June = 19,000 + 4,500 - 4,750 = 18,750 units

Sales forecast:

month units sold price p / unit total sales cash credit

April 15,000 $3 $45,000 $22,500 $13,500

May 17,000 $3 $51,000 $25,500 $22,050

June 19,000 $3 $57,000 $28,500 $25,875

July 18,000 $3 $54,000 $27,000 $26,025

Livia Shah · Answer 2

18,750 units

Explanation:

A firm has the following forecast information for sales of Product X:

April 15,000 units

May 17,000 units

June 19,000 units

July 18,000 units Product X sells for $3 per unit.

Half of the firm's sales are for cash and the other half is on account.

Credit sales are collected in the following pattern: 60% in the month of sale, 30% in the month following sale, and 5% in the second month following sale (the remainder are uncollectible).

If the firm targets its ending inventories to be 25% of the following month's sales, what are the budgeted purchases (in units) for June.

Purchases Budget = Required production for sales - opening inventory of raw materials + closing inventory of raw materials = Raw materials required

June's Production Budget

Required production for sales = ... 19,000 units

less: Beginning inventory (25% of June's sales) = ... 4,750 units

Add: Required Ending Inventory (25% of July's sales) = ... 4,500 units

Raw materials required for purchase in June = ... 18,750 units