I'm hoping someone smarter than me can offer some guidance solving a problem for an accounting class. I don't need anyone to answer it for me, I'm just hoping someone can give me a little better feedback and direction than my instructor did. I understand that two mistakes I made are that a quarter is three months, not four, and that the problem asks for the materials each month, not the total. These are easy fixes. My instructor seems to indicate, however, that my basic method of calculation is wrong. There's three sections: the original problem, my answer, and his e-mail to me trying to tell me what I did wrong:
The original problem:
Materials management produces a radiological procedures package for sale to other facilities. A sales budget for the first five months of
2007 is given:January 10,800 (sales budget in units) February 15,600 March 12,200 April 10,400 May 9,800
The inventory of finished products at the end of each month is to be equal to
25% of the sales estimate for the next month. On January 1, there were 2,700 units of product on hand. No work is in process at the end of any month. Each unit of product requires two types of material in the following quantities:Material A: 4 units Material B: 5 units
Materials equal to one-half of the next month's requirements are to be on hand at the end of each month. This requirement was met on January 1,
2007. Prepare a budget showing the quantities of each type of material to be purchased each month for the first quarter of 2007. ***************************************************************** My answer:January 1: 2700 units on hand. By the end of January, we need to have
25% of February sales estimate on hand. 25% of Feb sales = 3900. We also have sales of 10,800 units for January. We only have 2700 on hand, however. This means we have to make another 8100 units for January sales. Total units we need to make in January: 8100 + 3900 = 12,000February 1: 3900 units on hand. By the end of the month, we need to have 25% of March estimated sales on hand in inventory. 25% of March sales (12,200) = 3050. We also have sales of 15,600 in February. That's a difference of 11,700 from what we have on hand at the beginning of the month. Total units we need to make in February: 11,700 + 3,050 ,750
March 1: 3050 units on hand. By the end of the month, we need to have
25% of April sales on hand in inventory. 25% of April sales (10,400) 2600. We also have sales of 12,200 in March. That's a difference of 9,150 from what we have on hand at the beginning of the month. Total units we need to make in March: 2,600 + 9,150 = 11,750April 1: 2600 units on hand. By the end of the month, we need to have
25% of May sales on hand in inventory. 25% of May sales (9,800) 2,450. We also have sales of 10,400 in April. That's a difference of 7,800 from what we have on hand at the beginning of the month. Total units we need to make in April: 2,450 + 7,800 = 10,250Total units that need to be made in the first 4 months of the year:
12000+ 14750+ 11750+ 1025048,750 units total that need to be made Each unit contains 4 units of Material "A" and 5 units of Material "B".
4 x 48,750 = 195,000 units of Material "A" that need to be purchased 5 x 48,750 = 243,750 units of Material "B" that need to be purchased ************************************************************************** My instructor's response:The problem is looking for the purchases for each month, not the quarter. With this problem you first need to compute the changes in inventory of the completed packages. THEN you add current year sales to the changes to get the number of packages to be made. THEN compute the amount of A and of B to meet the manufacturing requirements. THEN figure the amount of A and B you need to meet the next month's manufacturing. THEN add the amount A you need to manufacture and addition and do the same for B.