Problem - A sales budget is given below for one of the products manufactured by the Key Co.:
Sales Budget in Units
January 20,000
February 35,000
March 60,000
April 40,000
May 30,000
June 25,000
The inventory of finished goods at the end of each month must equal 20% of the next month's sales. On December 31, the finished goods inventory totaled 4,000 units.
Each unit of product requires three specialized electrical switches. Since the production of these specialized switches by Key's suppliers is sometimes irregular, the company has a policy of maintaining an ending inventory at the end of each month equal to 30% of the next month's production needs. This requirement had been met on January 1 of the current year.
Required: Prepare a budget showing the quantity of switches to be purchased each month for January, February, and March and in total for the quarter.