Michard Corporation makes one product and it provided the following information to help prepare the master budget for the next four months of operations:The budgeted selling price per unit is $125. Budgeted unit sales for April, May, June, and July are 7,600, 10,500, 13,800, and 12,900 units, respectively. All sales are on credit.Regarding credit sales, 20% are collected in the month of the sale and 80% in the following month.The ending finished goods inventory equals 20% of the following month's sales.The ending raw materials inventory equals 30% of the following month's raw materials production needs. Each unit of finished goods requires 4 pounds of raw materials. The raw materials cost $2.00 per pound.Regarding raw materials purchases, 30% are paid for in the month of purchase and 70% in the following month.The direct labor wage rate is $25.00 per hour. Each unit of finished goods requires 3.0 direct labor-hours.The variable selling and administrative expense per unit sold is $3.40. The fixed selling and administrative expense per month is $80,000.The budgeted required production for May is closest to:

A) 11,160 units
B) 13,260 units
C) 15,360 units
D) 10,500 units

Question

Zybrea Knight · Accepted Answer

Final Answer : A, Explanation :  To calculate the budgeted required production for May, we first determine the desired ending inventory for May, which is 20% of June's sales (13,800 units). So, 20% of 13,800 = 2,760 units. The total needs for May are the sum of June's beginning inventory (May's ending inventory) and May's sales, which is 2,760 + 10,500 = 13,260 units. However, we must also account for April's ending inventory, which serves as May's beginning inventory. April's ending inventory is 20% of May's sales (10,500 units), so 20% of 10,500 = 2,100 units. Therefore, the budgeted required production for May is the total needs minus April's ending inventory: 13,260 - 2,100 = 11,160 units.

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