Q1) Tongo Toys produces and distributes a number of products to retailers. One of these products, Playclay, needs three pounds of materials A135 in manufacture of each unit. Company is now planning raw materials needs for third quarter-July, August, and September. Peak sales of Playclay haapen in third quarter of each year. Top keep production and shipments moving smoothly, company has requirements which is given below:
a. Finished goods inventory on hand at the end of each month must be equal to 5,000 units plus 30% of the next month's sales. The finished goods inventory on June 30 is budgeted to be 17,000 units.
b. Raw materials inventory on hand at the ending of each month should be equal to one-half of the following month's production requires for raw materials. Raw materials inventory on June 30 for material A35 is budgeted to be 64,500 units.
c. Company maintains no work in process inventories.
A Sales budget for Playclay for last six months of the year follows.
||Budgeted Sales in Units
Study production budget which you prepared. why will company manufactures more units than it sells in July and August and less units than it sells in September and October?