Morganton Company makes one product and it provided the following information to help prepare the master budget for its first four months of operations:
a. The budgeted selling price per unit is $70. Budgeted unit sales for June, July, August, and September are 8,400, 10,000, 12,000, and 13,000 units, respectively. All sales are on credit.
b. Forty-percent of credit sales are collected in the month of the sale nd 60% in the following month.
c. The ending finished goods inventory equals 20% of the following month's unit sales.
d. The ending raw materials inventory equals 10% of the following month's raw materials cost $2.00 per pound.
e. Thirty-percent of raw materials purchases are paid for in the month of purchse and 70% in the following month.
Why is the beginning inventory amount for June, 0, when calculating the units to be produced in June if budgeting assumption c. states that the ending finished goods inventory should be .2 of the next month's unit sales which means the starting finished goods inventory should be 1680(8400 x .2). Why must I use 0 for the beginning inventory in calculating the units to be produced in June?
Also, why does the cost of raw materials to be purchased in June include subtracting a beginning inventory of 12760 if when calculating the units to be produced in June involves having a 0 beginning finished goods inventory. Where does the Beginning raw materials amount of 12760 for June come from?