Boxer Company Plans to Sell 400,000 Units of Finished Product

question 6

Essay

Boxer Company plans to sell 400,000 units of finished product in July 20x1. Management (1) anticipates a growth rate in sales of 5% per month thereafter and (2) desires a monthly ending finished-goods inventory (in units) of 80% of the following month's estimated sales. There are 300,000 completed units in the June 30, 20x1 inventory.
Each unit of finished product requires four pounds of direct material at a cost of $1.50 per pound. There are 1,600,000 pounds of direct material in inventory on June 30, 20x1.
Required:
A. Prepare a production budget for the quarter ended September 30, 20x1. Note: For both part "A" and part "B" of this problem, prepare your budget on a quarterly (not monthly) basis.
B. Independent of your answer to part "A," assume that Boxer plans to produce 1,200,000 units of finished product for the quarter ended September 30. If the firm desires to stock direct materials at the end of this period equal to 25% of current production usage, compute the cost of direct material purchases for the quarter.

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Definitions:

Indirect Method

A technique used in cash flow statements to adjust net income for changes in non-cash items to calculate net cash from operating activities.

Statement of Cash Flows

This report details the fluctuations in balance sheet accounts and how income influences cash and cash equivalents, categorizing these changes into operating, investing, and financing sections.

Operating Activities

Activities that relate to the primary operations of a company, influencing its net cash flow from operating income.

Indirect Method

A way of reporting net cash flow from operating activities in the statement of cash flows by adjusting net income for changes in working capital items and non-cash transactions.