Question:
(Production and purchases budgets; writing) Narisho Supply is in the process of preparing the budget for the first quarter of 2011. The following projections for unit sales have been made:
|
January
|
February
|
March
|
Total
|
|
Sales
|
72,000
|
64,000
|
60,000
|
196,000
|
Each finished unit requires three direct materials: 4 pounds of Material M, 2.5 pounds of Material N, and 2 pounds of Material O. Based on company policies, the following estimates of finished units and pounds of direct material inventories are made:
|
December
|
January
|
February
|
March
|
|
Finished units
|
18,000
|
16,000
|
15,000
|
14,000
|
|
Direct material M
|
13,500
|
12,000
|
11,250
|
10,500
|
|
Direct material N
|
9,000
|
8,000
|
7,500
|
7,000
|
|
Direct material O
|
7,300
|
9,400
|
8,200
|
8,500
|
a. Prepare a monthly production and purchases budget for the first quarter of 2011.
b. The production supervisor wants to purchase new production equipment for 2011.Such equipment would largely replace the current labor-intensive production system. Write a memo to corporate management explaining why new production equipment could affect the production and purchases budget.
c. Who should be consulted to determine the new material requirements per unit if the new production equipment is installed?