 How much do we need in order to fulfill our cushion in terms of how much we want to have left over? We want to plan in to have a cushion in case we sell more than we thought and so here's how we're going to do that We're going to take the next month's sale. So in this case, it was the 19 6 19 6 We're going to take the August twenty thousand one hundred twenty thousand one hundred twenty thousand one hundred We're gonna have to estimate what it would be for October and then put in the units for October and September we're taking next month's totals in terms of unit sales Multiplying that times eighty percent. Why because this is the standard policy that we came up with in order to have a cushion as Of the Indian inventory. This is what we want left over. We think we're gonna sell so much and we want 80 percent of next Months sales left over. So if we were to multiply that out the 19 6 times 80 percent 15 6 80 twenty thousand one hundred times 80 percent sixteen thousand eighty twenty thousand six times eighty percent sixteen four eighty That's what we want in Indian inventory at the end of July in this case And then we're gonna say the budget unit sales. We're gonna say the budget unit sales We're just pulling these down. There's the 20 There's the 19 6 there's the twenty thousand one hundred though. That's what we're gonna actually sell during the period So we're gonna take what we want in the Indian inventory plus what we think we're gonna actually sell That's how much we're going to need That's gonna be the units that we're gonna need the units available the units that we would need to produce If we didn't already have some in there from last month But this is not our first year of operation. So we have this what we need to sell Plus the Indian inventory cushion. We're gonna have to subtract out from that what we have in there at the beginning So at the beginning we had sixteen thousand six ninety four We've got the fifteen six eighty That's gonna be of course the ending number here is the beginning number for the next month Ending number here is the beginning number for the next month This is where we're starting out with because this was the ending number for the month prior to our budgeting process here And so if we subtract this out the thirty six thousand two eighty minus the sixteen six ninety four is the nineteen Five eighty six the thirty six six eighty minus the fifteen six eighty is the twenty thousand the thirty six five eighty minus the sixteen eighties It's twenty thousand five hundred and that's the units that we need to then produce So these are how many units we need to produce Now the next thing is well now we can think about the materials the labor the overhead We're gonna look at the materials next time So we need to produce like this is guitars It would say if they were prison this many guitars We guys say well how much wood do we need to get to buy in order to produce that many guitars? And you might be thinking well how much wood does it take for each guitar? We're gonna have to just multiply how much wood it takes for each guitar And that's how much it's gonna take but same idea is here And the same idea being that we already have some wood probably from last month And we want to have some extra wood in case we have to actually make more than that Number just in case for whatever reason in case our budget is different We want to make sure that we have enough in order to cover the sales that we need to cover So therefore we're gonna do a similar calculation here for the material So here's our production budget here We're gonna use the production budget to create the raw materials budget How much material do we need to buy to make this stuff? We're gonna produce so we got the production in units We're just pulling the production down the production in units down. So here's the 19. Here's the 20 2005 the budgets are connected in this way That's why we got to do it in this order and then we're gonna say Materials required per unit. So if we're thinking about guitars You can take what we're buying a plank of wood and we only need half the plank of wood per guitar So we can make two guitars out of the one plank of wood for talking about other types of things It may mean that we need multiple units of material in order to create the guitars So what depends what we're making and so you got to be careful on how many units is it gonna take to make it? In this case, it takes less than one unit in order to make the product Therefore if we're gonna make 19586 half times point five, it's gonna take 9793 of planks of wood in this case that we're gonna cut in half for each of The units we're gonna make so same thing here the twenty thousand to ten the twenty thousand five is the twenty thousand two fifty Then we're gonna have the budgeted ending inventory So this is how much we would have if We didn't want any cushion at the end, but we do we want to have some material left over We want to have some wood left over at the end of the month So we're gonna say I have this cushion in here now the calculation for this and it's gonna be Dependent the problem's gonna have to give it to you in real life We'll have to put in some policy the policy here is that we're gonna take next month's Number we're gonna multiply at times point five. So that's the policy of this company. So That's gonna be the five thousand. We're gonna take it next month the ten thousand two fifty times point five five two Five one two five and we would have to know October's number Which which apparently is eight thousand in order to come up with this four thousand here So then if we then add these two up we've got the materials needed for production This is how much we want in Indian inventories. So the nine thousand seven ninety three plus the five thousand fourteen Seven ninety the ten thousand plus the five one two five is the fifteen one twenty five and so on So this is the materials required if we didn't have any in the beginning inventory That's how much we'd have to buy But we're saying we did have some in the beginning inventory and how much is in there at the beginning of the inventory Well, we started off with four thousand nine twenty five and then in the next month We've got five thousand of course the beginning Inventory is now the ending inventory for the next month and same here The beginning inventory for this month is going to be a projected Indian inventory for this month Alright, and then we're gonna say the materials purchased then is going to be the this number plus this number gives us the nine thousand eight Sixty eight sixty eight the fifteen one twenty five plus the five thousand is the ten thousand two twenty five the fourteen two fifty plus the Five one is the nine one two five. We're gonna multiply that times the material price per unit So how much does it cost per unit in this case? We're talking about planks of wood How much does it cost per plank of wood this whole thing? We've been looking at units in terms of planks of wood now We got to turn that into dollars and if we just multiply that out then the nine thousand eight sixty eight times The twenty one is the two oh seven two twenty four and so on and so on then if we add this up for the quarter This is the sum in terms of dollars for the quarter This is the sum in terms of units in terms of of planks of wood or units of material in this case