A Sales Budget Is Given Below for One of the Products

question 161

Essay

A sales budget is given below for one of the products manufactured by the Key Co.:
The inventory of finished goods at the end of each month should equal 20% of the next month's sales. However, on December 31 the finished goods inventory totaled only 4,000 units.
Each unit of product requires three specialized electrical switches. Since the production of these specialized switches by Key's suppliers is sometimes irregular, the company has a policy of maintaining an ending inventory at the end of each month equal to 30% of the next month's production needs. This requirement had been met on January 1 of the current year.
Required:
a. Prepare a budget showing the required production each month for January, February, March, and April.
b. Prepare a budget showing the quantity of switches to be purchased each month for January, February, and March.
March.

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Definitions:

Overapplied

A situation where the allocated overhead cost in a costing system exceeds the actual overhead costs incurred.

Underapplied

A situation where the applied cost in accounting is less than the actual cost incurred.

Cost of Goods Sold

The expenses directly related to the manufacturing of products sold by a business, encompassing both the cost of materials and labor specifically utilized in the production of those goods.

Employee Time Ticket

A document that records the amount of time an employee has worked on various tasks.