Projected sales for Olympic Company for the next month and beginning and ending inventory data are as follows:
Sales80,000 units
Beginning inventory6,000 units
Targeted ending inventory14,000 units
The selling price is $40 per unit.Each unit requires 8 pounds of material, which costs $2 per pound.The beginning inventory of raw material is 30,000 pounds.The company wants to have 40,000 pounds of material in inventory at the end of the month.
a)What would be the budget sales?
b)According to the production budget, how many units should be produced?
c)Pounds of material to be purchased would be
Budgeting plays a crucial role in the financial planning and management of a company. In this essay, we will explore how Olympic Company can create a budget for its upcoming month by considering projected sales, production needs, and material requirements. This comprehensive approach will ensure that the company maintains its desired inventory levels while meeting its sales goals.
The first step in budgeting for Olympic Company is to calculate the budgeted sales for the next month. Given that the company plans to sell 80,000 units at a selling price of $40 per unit, the budgeted sales can be calculated as follows:
Budget Sales = Sales Volume × Selling Price Budget Sales = 80,000 units × $40 per unit = $3,200,000
Therefore, the budgeted sales for Olympic Company for the next month amount to $3,200,000.
To determine how many units should be produced, we need to consider the beginning inventory, targeted ending inventory, and the budgeted sales. The production budget aims to strike a balance between these factors to ensure efficient production.
Beginning Inventory = 6,000 units Targeted Ending Inventory = 14,000 units Budget Sales = 80,000 units
The production budget formula is as follows:
Production Needed = Budget Sales + Targeted Ending Inventory – Beginning Inventory Production Needed = 80,000 units + 14,000 units – 6,000 units = 88,000 units
Therefore, Olympic Company should produce 88,000 units to meet its sales goals and maintain its desired ending inventory.
To calculate the pounds of material to be purchased, we need to consider the material required per unit, the production quantity, and the desired ending inventory of raw material.
Material Required per Unit = 8 pounds Production Needed = 88,000 units Desired Ending Inventory of Material = 40,000 pounds Beginning Inventory of Material = 30,000 pounds
The material purchases can be calculated as follows:
Material Needed for Production = (Production Needed + Desired Ending Inventory of Material) – Beginning Inventory of Material Material Needed for Production = (88,000 units × 8 pounds/unit + 40,000 pounds) – 30,000 pounds Material Needed for Production = (704,000 pounds + 40,000 pounds) – 30,000 pounds Material Needed for Production = 714,000 pounds – 30,000 pounds = 684,000 pounds
Olympic Company should plan to purchase 684,000 pounds of material to support production and maintain the desired ending inventory of 40,000 pounds.
In conclusion, budgeting for Olympic Company involves careful consideration of sales projections, production needs, and material requirements. By calculating the budgeted sales, determining the production quantity, and estimating the pounds of material to be purchased, the company can ensure efficient operations, maintain inventory levels, and work towards achieving its financial goals. This comprehensive budgeting approach is essential for the company’s financial planning and success.
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