A department has a planned stock turnover of 4.3 and planned sales of $451,000 for a six-month period. April sales are estimated at $68,000 and May sales at $72,000. Using the basic stock method, Determine the BOM stock for April and the BOM stock for May.
Bill of Material (BOM):
Bill of material (BOM) list components of raw material and parts required to manufacture the final product. An accurate BOM is essential in ensuring the smooth running of a manufacturing process because a mistake can halt the process. BOM is the centralized source of information used in production.
Answer and Explanation:
We will first determine the average inventory over a period of six months.
- Inventory turnover = Sales / Average inventory
We will let x represent average inventory.
- 4.3 = $451,000 / x
- X = $451,000 / 4.3
- X = 104,883.7
We round off the amount to 104,884
Average monthly stock is calculated as follows.
- Average monthly stock = 104,883.7 / 6
- Average monthly stock = 17,480.6
We round off the amount to 17,481
We will use the formula for determining the stock at the beginning of the month, the stock at the beginning of the month is equivalent to the bill of material (BOM).
- Stock at the beginning of the month = Planned monthly sales + basic stock
Bill of material (BOM) for the month of April is determined as follows.
- BOM for April = $68,000 + $17,481
- BOM for April = $85,481
Bill of material (BOM) for the month of May is determined as follows.
- BOM for May = $72,000 + $17,481
- BOM for May = $89,481
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from Financial Accounting: Help and ReviewChapter 2 / Lesson 9