Preparing a Direct Materials Purchases Budget Patrick Inc ma

Preparing a Direct Materials Purchases Budget

Patrick Inc. makes industrial solvents sold in five-gallon drums. Planned production in units for the first three months of the coming year is:

Each drum requires 6 gallons of chemicals and one plastic drum. Company policy requires that ending inventories of raw materials for each month be 20% of the next month\'s production needs. That policy was met for the ending inventory of December in the prior year. The cost of one gallon of chemicals is $2.00. The cost of one drum is $1.60.

Required:

1. Calculate the ending inventory of chemicals in gallons for December of the prior year, and for January and February. What is the beginning inventory of chemicals for January? Round your answers to the nearest whole gallon.

2. Prepare a direct materials purchases budget for chemicals for the months of January and February. Round Dollar purchases to the nearest dollar. Round all the other values to the nearest whole unit. Do not include a multiplication symbol as part of your answer.

3. Calculate the ending inventory of drums for December of the prior year, and for January and February. Round your answers to the nearest whole unit.

units

4. Prepare a direct materials purchases budget for drums for the months of January and February. Round Dollar purchases to the nearest dollar. Round all the other values to the nearest whole unit. Do not include a multiplication symbol as part of your answer.

January	40,000
February	50,000
March	65,000

Solution

1) Gallons Ending inventory for december (40,000*6*20%) 48000 ending inventory for January (50,000*6*20%) 60000 ending inventory for february (65000*6*20%) 78000 beginning inventory for January 48,000 2) Direct Materials purchase Budget-Chemicals in galons Jan Feb production in units 40,000 50,000 Gallons per unit 6 6 Gallons for production 240000 300000 Desired ending inventory 60,000 78,000 Needed 300000 378000 less:Beginning inventory 48,000 60,000 purchases 252,000 318,000 price per gallon 2 2 dollar purchases 504000 636000 units 3) Ending inventory for december (40,000*20%) 8,000 ending inventory for January (50000*20%) 10,000 ending inventory for february (65000*20%) 13000 4) Direct materials purchase budget-Drums Jan Feb production in units 40,000 50,000 Drums per unit 1 1 Drums for production 40,000 50,000 Desired ending inventory 10,000 13,000 Needed 50,000 63,000 less:Beginning inventory 8,000 10,000 purchases 42,000 53,000 price per drum 1.60 1.60 dollar purchases 67200 84800