The Volt Battery Company has forecast its sales in units as follows:

January	1,300	May	1,850
February	1,150	June	2,000
March	1,100	July	1,700
April	1,600

Volt Battery always keeps an ending inventory equal to 110 percent of the next month’s expected sales. The ending inventory for December (January’s beginning inventory) is 1,460 units, which is consistent with this policy.

Materials cost \(14 per unit and are paid for in the month after purchase. Labor cost is \)7 per unit and is paid in the month the cost is incurred. Overhead costs are \(8,500 per month. Interest of \)8,500 is scheduled to be paid in March, and employee bonuses of $13,700 will be paid in June.

Prepare a monthly production schedule and a monthly summary of cash payments for January through June. Volt produced 1,100 units in December.

Step by step solution

01

Desired ending inventory of January

$\begin{array}{rcl}\mathrm{Ending}\mathrm{inventory}\mathrm{of}\mathrm{january}& =& 110\%\mathrm{of}\mathrm{next}\mathrm{month}\mathrm{expected}\mathrm{sales}\\ & =& 110\%\times \$1,150\\ & =& \$1,265\end{array}$

02

Desired ending inventory of February

$\begin{array}{rcl}\mathrm{Ending}\mathrm{inventory}\mathrm{of}\mathrm{february}& =& 110\%\mathrm{of}\mathrm{next}\mathrm{month}\mathrm{expected}\mathrm{sales}\\ & =& 110\%\times \$1,100\\ & =& \$1,210\end{array}$

03

Desired ending inventory of March

$\begin{array}{rcl}\mathrm{Ending}\mathrm{inventory}\mathrm{of}\mathrm{march}& =& 110\%\mathrm{of}\mathrm{next}\mathrm{month}\mathrm{expected}\mathrm{sales}\\ & =& 110\%\times \$1,600\\ & =& \$1,760\end{array}$

04

Desired ending inventory of April

$\begin{array}{rcl}\mathrm{Ending}\mathrm{inventory}\mathrm{of}\mathrm{april}& =& 110\%\mathrm{of}\mathrm{next}\mathrm{month}\mathrm{expected}\mathrm{sales}\\ & =& 110\%\times \$1,850\\ & =& \$2,035\end{array}$

05

Desired ending inventory of May

$\begin{array}{rcl}\mathrm{Ending}\mathrm{inventory}\mathrm{of}\mathrm{may}& =& 110\%\mathrm{of}\mathrm{next}\mathrm{month}\mathrm{expected}\mathrm{sales}\\ & =& 110\%\times \$2,000\\ & =& \$2,200\end{array}$

06

Desired ending inventory of June

$\begin{array}{rcl}\mathrm{Ending}\mathrm{inventory}\mathrm{of}\mathrm{june}& =& 110\%\mathrm{of}\mathrm{next}\mathrm{month}\mathrm{expected}\mathrm{sales}\\ & =& 110\%\times \$1,700\\ & =& \$1,870\end{array}$

07

Beginning inventory of January

$\begin{array}{rcl}\mathrm{Beginning}\mathrm{inventory}\mathrm{of}\mathrm{january}& =& 110\%\mathrm{of}\mathrm{january}\mathrm{expected}\mathrm{sales}\\ & =& 110\%\times \$1,300\\ & =& \$1,430\end{array}$

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