Bob Haskins is the purchasing manager for Regal Products. Each year Regal Products develops a master budget. Bob is responsible for preparing a purchasing budget, which he bases on budgeted levels of production. Bob carefully plans purchasing costs and raw material inventory levels to meet production needs.

Each year, Yvonne Lang, president of Regal Products, conducts performance evaluations, and bonuses are paid to key employees, including Bob, based on meeting budgeted results. For the past two years, Bob has received a very small bonus and has been chided by Yvonne for poor planning. Specifically, Yvonne has pointed out that the purchasing department has not maintained adequate levels of raw material inventory and is always in a rush to obtain materials, resulting in increased shipping and handling charges. Further, Regal must often pay premium amounts for immediate shipment of materials. In her most recent evaluation, Yvonne stated to Bob, "The sales department and production department are doing an excellent job. They consistently exceed their budgets by \(10 \%\) or more. I just don't understand why you can't meet your numbers. Perhaps it is time for some changes around here."

After getting chided by Yvonne, Bob went back and looked at his budget. He knew he had ordered the amount required by the budget. The budget for January and February is as follows:

\section*{Required}
A. If sales levels were \(10 \%\) higher than budgeted, how many pounds of raw materials would Bob need to rush order each month so he can meet demand and the required ending inventory as shown in the budget?
B. Why does it appear that the purchasing department is having trouble meeting its budget?
C. Is it appropriate to blame Bob for all of the purchasing problems?
D. If Yvonne does "make some changes," what changes would you suggest she consider?

Transcribed Image Text:

January February Unit sales 300,000 350,000 Add: Desired ending inventory 35,000 25,000 Subtotal 335,000 375,000 Less: Beginning inventory 30.000 35,000 Budgeted production 305.000 340,000 Pounds of raw materials per unit 1.1 1.1 Required pounds of raw materials 335,500 374,000 Add: Desired ending inventory of raw materials 37,400 27,500 Less: Beginning inventory of raw materials 33,550 37,400 Total raw material needs (pounds) 339,350 364,100