Question

Exercise 21-8 (Part Level Submission)

Fuqua Company’s sales budget projects unit sales of part 198Z of 10,900 units in January, 12,800 units in February, and 13,100 units in March. Each unit of part 198Z requires 4 pounds of materials, which cost $3 per pound. Fuqua Company desires its ending raw materials inventory to equal 40% of the next month’s production requirements, and its ending finished goods inventory to equal 20% of the next month’s expected unit sales. These goals were met at December 31, 2016.

1. Prepare a production budget for January and February 2017.

2. Prepare a direct materials budget for January 2017.

Answer 1

Fuqua Company

Production Budget for January and February 2017.

	January	February
Budgeted unit sales	10,900	12,800
Desired ending inventory units	2,560 (12,800*20%)	2,620 (13,100*20%)
Total needs	13,460	15,420
Beginning inventory units	(2,180) (10,900*20%)	(2,560) (12,800*20%)
Required production in units	11,280	12,860

* Ending inventory of a particular month is the beginning inventory for the next month.

2.

Fuqua Company

Direct materials budget for January 2017

	January
Production in units	11,280
Pounds of raw materials required per unit	4
Pounds of raw materials required for production	45,120
Ending inventory of raw materials	20,576 (12,860*4*40%)
Raw material needs	65,696
Beginning inventory of raw materials	(18,048) (45,120*40%)
Raw materials to be purchased	47,648
Raw materials cost per pound	$3
Cost of direct material purchases	$142,944