chapter name: profit planning

E-2 Tonga Toys manufactures and distributes a number of products to retailers. One of these products, Playclay, requires three pounds of material A135 in the manufacture of each unit. The company is now planning raw materials needs for the third quarterJuly, August, and September. Peak sales of Playclay occur in the third quarter of each year. To keep production and shipments moving smoothly, the company has the following inventory requirements: a. The finished goods inventory on hand at the end of each month must be equal to 5,000 units plus 30% of the next month's sales. The finished goods inventory on June 30 is budgeted to be 17,000 units. b. 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 for material A 135 is budgeted to be 64,500 pounds. c. The company maintains no work in process inventories. d. A sales budget for Playclay for the last six months of the year follows. Month Budgeted Sales in Units July 40,000 August 50,000 September 70,000 October 35,000 November 20,000 Required: i) ii) Prepare a production budget for Playclay for the months July, August, September, and October. Examine the production budget that you prepared. Why will the company produce more units than it sells in July and August and less units than it sells in September and October? 'Management Accounting Lectures' for EDU BBA students