Organic Industries intends to start business on 1 January. Production plans for the first four months of
Question:
Organic Industries intends to start business on 1 January. Production plans for the first four months of operations are as follows.
January ................ 20 000 units
February .............. 50 000 units
March ................... 70 000 units
April ...................... 70 000 units
Each unit requires 2 kilograms of material. The entity would like to end each month with enough raw material inventory on hand to cover 25 per cent of the following month’s production needs. The material costs $7 per kilogram. The managers anticipate being able to pay for 40 per cent of purchases in the month of purchase. They will receive a 10 per cent discount for these early payments. They anticipate having to defer payment to the next month on 60 per cent of their purchases. No discount will be taken on these late payments. The business starts with no inventories on 1 January.
Required
Determine the budgeted payments for purchases of materials for each of the first three months of operations.
Step by Step Answer:
Management Accounting
ISBN: 9780730369387
4th Edition
Authors: Leslie G. Eldenburg, Albie Brooks, Judy Oliver, Gillian Vesty, Rodney Dormer, Vijaya Murthy, Nick Pawsey