Answer to Question #195432 in Accounting for jamila

Question

Unilever has forecasted purchases on account to be BDT 208000 in March, BDT 266000 in April, BDT 308000 in May, and BDT 364000 in June. 70 percent of purchases are paid for in the month of purchase, the remaining are paid in the following month. What are budgeted cash payments for April?

(b) Taba Bangladesh intends to produce special type of leather handbags for the upcoming season. The production budget for the next four months is: June 4200 units, July 7600 units, August 7000 units, September 7900 units. Each handbag requires 0.4 square meters of leather. Its leather inventory policy is 30 percent of next month's production needs. On June 1 leather inventory was expected to be 1900 square meters. Leather is expected to cost BDT 5 per square meter in June. What is the expected cost of leather purchases in June?

Answer 1

a)

​​​​​​Purchases on Account in March = BDT 208,000 (given)

Purchases on Account in April = BDT 266,000 (given)

It is given that 70% of purchases are paid for in the month of purchases, and the remaining are paid in the following month.

So,

Budgeted cash payment for April = 30% of Purchases on Account in March + 70% of Purchases on Account in April

= 30% of BDT 208,000 + 70% of BDT 266,000

= BDT 62,400 + BDT 186,200

= BDT 248,600

b)

Budgeted production in June = 4,200 units (given)

Budgeted production in July = 7,600 units (given)

Leather requirement per unit = 0.4 square meters (given)

Leather required for June's production = Leather required per unit * Budgeted production in June

= 0.4 * 4,200

= 1,680 square meters

Leather required for July's production = Leather required per unit * Budgeted production in July

= 0.4 * 7,600

= 3,040 square meters

Now,

Leather purchases in June = Ending Inventory of leather required to be maintained on June 30 + Leather required for June's production - Beginning Inventory of leather on June 1

Beginning inventory of leather on June 1 = 1,900 square meters (given)

Ending inventory of leather to be maintained on June 30 = 30% of leather required for July's production

= 30% of 3,040 square meters

= 912 square meters

So,

Leather purchases in June = 912 + 1,680 - 1,900

= 692 square meters

​​​​​​Now,

Leather cost per square meters in June = BDT 5 per square meter

So,

Expected Cost of Leather purchases in June = Leather purchases in June in square meters * Leather cost per square meters in June

​​​​​​= 692 * BDT 5

= BDT 3,460