Ballina Products manufactures and distributes toys to retail outlets. One of the company’s products, RC Helicopter, requires 3 kilograms of material A in the manufacture of each unit. The company is now planning raw material needs for the third quarter of 20x1, the quarter in which peak sales of RC Helicopters occur. In order to keep production and sales moving smoothly, the company has the following inventory requirements:

1. The finished goods inventory on hand at the end of each month must be equal to 5,000 units plus 25 percent of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 13,750 units.

2. The raw materials inventory on hand at the end of each month must be equal to one-half of the following month’s production needs for raw materials. The raw materials inventory on June 30 is budgeted to be 54,375 kilograms.

3. The company maintains no work in process inventories. A sales budget for RC Helicopter for the last six months of 20x1 is given below:

Budgets sales in units

July ..................................................35,000

August .............................................40,000

September ........................................50,000

October ............................................30,000

November ........................................20,000

December .........................................15,000

Required:

1. Prepare a production budget for RC Helicopter for the months July–October.

2. Examine the production budget which you prepared in (1) above. Why will the company produce more units than it sells in July and August, and less units than it sells in September and October?

3. Prepare a budget showing the quantity of material A to be purchased for July, August, and September 20x1 and for the quarter in total.