Question

Production Budget and Direct Materials Purchases Budgets

Peanut Land Inc. produces all-natural organic peanut butter. The peanut butter is sold in 12-ounce jars. The sales budget for the first four months of the year is as follows:

	Unit Sales	Dollar Sales ($)
January	60,000	114,000
February	45,000	85,500
March	40,000	76,000
April	66,000	125,400

Company policy requires that ending inventories for each month be 10% of next month's sales. At the beginning of January, the inventory of peanut butter is 31,000 jars.

Each jar of peanut butter needs two raw materials: 24 ounces of peanuts and one jar. 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 on January 1.

Required:

1. Prepare a production budget for the first quarter of the year. Show the number of jars that should be produced each month as well as for the quarter in total.

2. Prepare a direct materials purchases budget for jars for the months of January and February.

3. Prepare a direct materials purchases budget for peanuts for the months of January and February.

Answer 1

1)

	Peanut Land inc.
	Production Budget
	For the first quarter of the year
	January	February	March	Total
Sales	60,000	45,000	40,000	145,000
Desired ending inventory	4,500	4,000	6,600	6,600
Total needs	64,500	49,000	46,600	151,600
Less: Beginning inventory	31,000	4,500	4,000	31,000
Units produced	33,500	44,500	42,600	120,600

2)

	Peanut Land inc.
	Direct materials Purchases Budget for Jars
	For January and February
	January	February	Total
Production	33,500	44,500	78,000
Number of jars	1	1	1
jars for production	33,500	44,500	78,000
Desired ending inventory	8,900	8,520	8,520
Total needs	42,400	53,020	86,520
Less: Beginning inventory	6,700	8,900	6,700
Jars purchased	35,700	44,120	79,820

3)

Peanut Land inc.
	Direct materials Purchases Budget for Peanuts
	For January and February
	January	February	Total
Production	33,500	44,500	78,000
Ounces	24	24	24
Ounces for production	804,000	1,068,000	1,872,000
Desired ending inventory	213,600	204,480	204,480
Total needs	1,017,600	1,272,480	2,076,480
Less: Beginning inventory	160,800	213,600	160,800
Ounces purchased	856,800	1,058,880	1,915,680

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