Gerrad Manufacturing has projected sales of its product for the next six months as follows:
January 300 units
February 700 units
March 1,000 units
April 900 units
May 400 units
June 300 units
The finished product requires 3 pounds of raw material and 10 hours of direct labor. Gerrad tries to maintain a Finished Goods ending inventory equal to the next two months of sales and a Raw Material ending inventory equal to one half of the current month’s production needs. January’s beginning inventories are expected to conform to company policy.
a. Prepare a production budget for February, March, and April.
b. Prepare a forecast of the units and cost of raw material that will be required for February, March, and April. The expected cost per pound of raw material is expected to be $2 in February, $2.30 in March, and $2.40 in April.
c. Prepare a direct labor budget (assuming a $12 per hour rate) for February, March, and April.
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