Problem:
Alvarez Company produces various parts used in the automotive industry. The sales budget for the first eight months of 2012 shows the following projections: Month Units Month Units January 25,000 May 31,400 February 27,000 June 34,500 March 32,000 July 36,700 April 28,500 August 35,000 Inventory on December 31 of the previous year was budgeted at 6,250 units. The desired quantity of finished- goods inventory at the end of each month in 2012 is to be equal to 25 percent of the next month's budgeted unit sales. Each unit of finished product requires three pounds of raw material. The company wants to have 30 percent of next month's required raw materials on hand at the end of each month.
Required:
A. Prepare a production budget for January through June of 2012.
B. Prepare a material purchases budget for the same period, assuming that each pound of raw material costs $ 22.