Question

Garver Industries has budgeted the following unit sales:

2017		Units
January		10,000
February		8,000
March		9,000
April		11,000
May		15,000

The finished goods units on hand on December 31, 2016, was 2,000 units. Each unit requires 3 pounds of raw materials that are estimated to cost an average of $4 per pound. It is the company's policy to maintain a finished goods inventory at the end of each month equal to 20% of next month's anticipated sales. They also have a policy of maintaining a raw materials inventory at the end of each month equal to 30% of the pounds needed for the following month's production. There were 8,640 pounds of raw materials on hand at December 31, 2016.
For the first quarter of 2017, prepare a production budget.

GARVER INDUSTRIES Production Budget For the Quarter Ended March 31, 2017
			January		February		March		Total
Desired ending finished goods unitsExpected unit salesRequired production unitsTotal required unitsBeginning finished goods unitsCost per poundDirect materials purchases
Direct materials purchasesCost per poundDesired ending finished goods unitsExpected unit salesRequired production unitsTotal required unitsBeginning finished goods units
Cost per poundDirect materials purchasesExpected unit salesTotal required unitsRequired production unitsBeginning finished goods unitsDesired ending finished goods units
AddLess:	Direct materials purchasesExpected unit salesRequired production unitsCost per poundBeginning finished goods unitsTotal required unitsDesired ending finished goods units
Cost per poundTotal required unitsExpected unit salesBeginning finished goods unitsDirect materials purchasesDesired ending finished goods unitsRequired production units

For the first quarter of 2017, prepare a direct materials budget.

GARVER INDUSTRIES Direct Materials Budget For the Quarter Ended March 31, 2017
			January		February		March		Total
Direct materials purchasesTotal cost of direct materials purchasesTotal pounds needed for productionDirect materials per unitBeginning direct materialsDesired ending direct materialsCost per poundTotal materials requiredUnits to be produced			$		$		$
Total pounds needed for productionDirect materials purchasesDirect materials per unitUnits to be producedTotal cost of direct materials purchasesTotal materials requiredDesired ending direct materialsBeginning direct materialsCost per pound
Cost per poundUnits to be producedDesired ending direct materialsDirect materials purchasesTotal pounds needed for productionBeginning direct materialsDirect materials per unitTotal materials requiredTotal cost of direct materials purchases
Total materials requiredCost per poundUnits to be producedDirect materials purchasesTotal cost of direct materials purchasesTotal pounds needed for productionDesired ending direct materialsDirect materials per unitBeginning direct materials
Direct materials purchasesCost per poundTotal materials requiredDirect materials per unitDesired ending direct materialsBeginning direct materialsTotal pounds needed for productionTotal cost of direct materials purchasesUnits to be produced
AddLess:	Direct materials per unitTotal pounds needed for productionTotal cost of direct materials purchasesBeginning direct materialsTotal materials requiredUnits to be producedCost per poundDirect materials purchasesDesired ending direct materials
Units to be producedDirect materials purchasesDirect materials per unitTotal pounds needed for productionTotal materials requiredDesired ending direct materialsTotal cost of direct materials purchasesCost per poundBeginning direct materials
Desired ending direct materialsDirect materials per unitDirect materials purchasesCost per poundTotal materials requiredUnits to be producedTotal cost of direct materials purchasesBeginning direct materialsTotal pounds needed for production
Total cost of direct materials purchasesDirect materials per unitUnits to be producedTotal pounds needed for productionDesired ending direct materialsBeginning direct materialsDirect materials purchasesCost per poundTotal materials required			$		$		$		$

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Answer 1

SOLUTION

(A) Production Budget-

	January	February	March	Total
Expected unit sales	10,000	8,000	9,000
Add: Desired ending finished goods units	1,600	1,800	2,200
Total required units	11,600	9,800	11,200
Less: Beginning finished goods units	2,000	1,600	1,800
Required production units	9,600	8,200	9,400	27,200

*April units: 11,000 * 20% = 2,200

Desired ending finished goods units = 20% * Next months sales

January = 8,000*20% = 1,600

February = 9,000*20%= 1,800

March = 11,000*20% =2,200

(B) Direct Materials Budget-

	January	February	March	Total
Units to be produced	9,600	8,200	9,400
Direct materials per unit	3	3	3
Total pounds needed for production	28,800	24,600	28,200
Desired ending direct materials (pounds)	7,380	8,460	10,620
Total materials required	36,180	33,060	38,820
Less: Beginning direct materials (pounds)	8,640	7,380	8,460
Direct materials purchases	27,540	25,680	30,360
Cost per pound	$4	$4	$4
Total cost of direct materials purchases	110,160	102,720	121,440	334,320

**April units: 11,800 * 3 = 35,400 * 30% = 10,620