Card Bicycle Co. has prepared production and raw materials budgets for next year. At the end of this year, the finished product inventory is expected to include 2,000 bicycles and raw material inventory is expected to include 3,000 bicycle tires. Each finished bicycle requires two tires. The marketing department provided the following data from the sales budget for the first quarter:
January February March
——- ——– ——-
Expected Bicycle Sales (units) 12,000 16,000 18,000
The company inventory policy is to have finished product inventory equal to 20% of the following month's sales requirements and raw material equal to 10% of the following month's production requirements. In the January budget for raw materials, how many tires are expected to be purchased?
A.
24,200
B.
26,120
C.
26,600
D.
26,680
ANSWER:
January production = Jan. sales + Desired ending inventory –
Beginning inventory
= 12,000 + (0.20 x 16,000) – 2,000 = 13,200 bicycles
February production = Feb. sales + Desired ending inventory –
Beginning inventory
= 16,000 + (0.20 x 18,000) – (0.20 x 16,000) =
16,400 bicycles
January purchases = Production needs + Desired ending inventory –
Beginning inventory
= (2 x 13,200) + (0.10 x 2 x 16,400) – 3,000 =
26,680 tires
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AUD- 95- 8/16- (Ninja Avg. 81%)
BEC- 82- 9/16- (Ninja Avg. 75%)
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