A Sales Budget Is Given Below for One of the Products

question 70

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 totalled 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:

Prepare a budget showing the quantity of switches to be purchased each month for January, February, and March, and in total for the quarter.

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Definitions:

Debt Securities

Financial instruments representing money borrowed that must be repaid, with terms defining the interest rate and maturity date.

Equity Securities

Financial instruments that represent ownership in a company, such as stocks, granting holders a claim on the company's assets and earnings.

Financial Assets

Assets that derive value because of a contractual claim, such as stocks, bonds, bank deposits, and other investments.

Derivative Securities

Financial instruments whose value is derived from the value of an underlying asset, such as futures, options, and swaps.