University:
California State University, Northridge
Course:
FIN 442 | Theory and Practice of Financial Planning
Academic year:

2024
Views:

295

Pages:

21
Author:

Dalia Christian

Chapter 7 Profit Planning Part 2 7-25 Learning Objective 3 Prepare a production budget. 7-26 The Production Budget • The management at Royal Company wants ending inventory to be equal to 20% of the following month’s budgeted sales in units. • On March 31, 4,000 units were on hand. Let’s prepare the production budget. 7-27 The Production Budget 7-28 The Production Budget March 31 ending inventory Budgeted May sales Desired ending inventory % Desired ending inventory 50,000 20% 10,000 7-30 Quick Check  What is the required production for May? a. 56,000 units b. 46,000 units c. 62,000 units d. 52,000 units 7-31 The Production Budget 7-32 The Production Budget Assumed ending inventory. 7-33 Learning Objective 4 Prepare a direct materials budget, including a schedule of expected cash disbursements for purchases of materials. 7-34 The Direct Materials Budget • At Royal Company, five pounds of material are required per unit of product. • Management wants materials on hand at the end of each month equal to 10% of the following month’s production. • On March 31, 13,000 pounds of material are on hand. Material cost is $0.40 per pound. Let’s prepare the direct materials budget. 7-35 The Direct Materials Budget From production budget 7-36 The Direct Materials Budget 7-37 The Direct Materials Budget March 31 inventory 10% of following month’s production needs. Calculate the materials to be purchased in May. 7-39 Quick Check  How much materials should be purchased in May? a. 221,500 pounds b. 240,000 pounds c. 230,000 pounds d. 211,500 pounds 7-40 The Direct Materials Budget 7-41 The Direct Materials Budget Assumed ending inventory 7-42 Expected Cash Disbursement for Materials • Royal pays $0.40 per pound for its materials. • One-half of a month’s purchases is paid for in the month of purchase; the other half is paid in the following month. • The March 31 accounts payable balance is $12,000. Let’s calculate expected cash disbursements. 7-43 Expected Cash Disbursement for Materials 7-44 Expected Cash Disbursement for Materials Compute the expected cash disbursements for materials for the quarter. 140,000 lbs. × $.40/lb. = $56,000 7-46 Quick Check  What are the total cash disbursements for the quarter? a. $185,000 b. $ 68,000 c. $ 56,000 d. $201,400 7-47 Expected Cash Disbursement for Materials

Profit Planning, Part 2

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