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Purchasing Budget and Strategic Considerations

Noise Hollow launched a new stereo in January. The budget for the stereo is as follows:

January February

Unit Sales 1,000 1,500
Add: Desired ending inventory 300 400
Subtotal 1,300 1,900
Less: Beginning inventory 0 300
Total production 1,300 1,600
Units of materials per finished good 10 10
Required units of materials 13,000 16,000
Cost of materials per unit x $5 x $5
Total purchasing cost $65,000 $80,000

Actual units of materials required per finished good were 12 units in January and 11 units in February. Actual cost of materials was $6 per unit in January and $5.50 per unit in February.

A. Show what the budget would have looked like with the actual material requirements and costs.
B. What strategic considerations should be taken into account when reviewing this product?

Solution Summary

This solution answers questions regarding a purchase budget and strategic considerations.