Copyright

A department has a planned stock turnover of 4.3 and planned sales of 451,000 for a six-month...

Question:

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

So,

  • 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

Learn more about this topic:

Loading...
Finished Goods Inventory: Calculation & Formula

from Financial Accounting: Help and Review

Chapter 2 / Lesson 9
15K

Related to this Question

Explore our homework questions and answers library