Maynor Ltd. makes a single type of product and carries no Work in Process Inventory. The company has prepared the following sales forecast for each half of 2010:
January through June.................................... 1,500,000 units
July through December.................................... 1,680,000 units
Estimated ending finished goods inventories are
December 31, 2009.................................... 120,000 units
June 30, 2010.............................................. 104,000 units
December 31, 2010.................................... 60,000 units
Each unit of product requires 2.5 pounds of Material A (cost, $6 per pound) and 1.5 pounds of Material B (cost $11 per pound). Estimated raw material inventories are

Required:
(a) Prepare a production budget for each half of 2010.
(b) Prepare purchases budgets for Materials A and B for each half of 2010 (in units and dollars).
(c) Maynor Ltd. expects to steadily decrease its ending inventory of Material A, but shows a significant increase in its holdings of Material B (the more expensive material). Why would a company want to hold such large quantities of a raw material inventory item? Give an example of an inventory item of which a company might want to increase its holdings. What costs would a company incur for holding large quantities of an inventory item?

Transcribed Image Text:

December 31,2009 June 30, 2010 December 31, 2010 Material A 40,000 units 26,000 units 15,200 units Material B 10,000 pounds 18,000 pounds 44,000 pounds