Question 11.RQ.3: An ice cream manufacturer is in the process of preparing bud...
An ice cream manufacturer is in the process of preparing budgets for the next few months, and the following draft figures are available:
Sales forecast
June 6,000 cases
July 7,500 cases
August 8,500 cases
September 7,000 cases
October 6,500 cases
Each case uses 2.5 kg of ingredients and it is policy to have inventories of ingredients at the end of each month to cover 50 per cent of next month’s production. There are 750 cases of finished ice cream in inventory on 1 June and it is policy to have inventories at the end of each month to cover 10 per cent of the next month’s sales.
Requirements
(a) The production budget (in cases) for June and July will be:
June \boxed{ \ \ \ \ \ \ \ \ \ \ \ \ \ }
July \boxed{ \ \ \ \ \ \ \ \ \ \ \ \ \ }
(b) The ingredient purchases budget (in kg) for August will be \boxed{ \ \ \ \ \ \ \ \ \ \ \ \ \ }
● Use a clear columnar layout for your budget workings. Although your workings will not earn marks, clear workings help you to avoid arithmetical errors because 100 per cent accuracy is vital.
● Do not forget to adjust for the budgeted movement in inventory in parts (a) and (b). A common error is to get the opening and closing inventory calculations the wrong way round.
(a) June: 6,000
July: 7,600
(b) August: 19,125
Workings:
Production budget (in cases)
| June | July | August | September | |
| Cases to be sold | 6,000 | 7,500 | 8,500 | 7,000 |
| Closing inventory | (7,500 × 10%) 750 | (8,500 × 10%) 850 | (7,000 × 10%) 700 | (6,500 × 10%) 650 |
| Opening inventory | 750 | 750 | 850 | 700 |
| Production budget | 6,000 | 7,600 | 8,350 | 6,950 |
Ingredients purchases budget (in kg)
August
Quantity to be used in production (8,350 ×2.5) 20,875
Quantity in closing inventory (6,950 × 2.5 × 50%) 8,687.5
Quantity in opening inventory (8,350 × 2.5 × 50%) (10,437.5)
Ingredients purchases budget 19,125.0