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Production Budget and Direct Materials Purchases Budgets Peanut Land Inc. produces all-natural organic peanut butter. The...

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 60,000 120,000 February 70,000 140,000 March 50,000 100,000 April 58,000 116,000 Company policy requires that ending inventories for each month be 15% of next month's sales. At the beginning of January, the inventory of peanut butter is 35,000 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. Peanut Land Inc. Production Budget For the First Quarter of the Year January February March Total

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Expert Solution

Given:

Sales Budget:

Month Unit Sales Dollar Sales ($)
January 60000 120000
February 70000 140000
March 50000 100000
April 58000 116000

Ending inventory for each month = 15% of next month's sales

Opening inventory of peanut butter is 35000 jars at the beginning of January.

Production Budget:

Particulars January February March
Expected Sales 60000 70000 50000
Add: Closing inventory to be maintained as per Company's policy 10500 7500 8700
(70000 * 15%) (50000 * 15%) (58000 * 15%)
Less: Opening inventory 35000 10500 7500
Peanut butter to be produced 35500 67000 51200

Total Peanut butter to be produced in the quarter = 35500 + 67000 + 51200 = 153700 units

Direct Material Purchases Budget:

Given:

One unit of Peanut Butter requires two raw materials:

a. Peanuts - 24 ounces

b. Jar - 1 jar

Ending inventory for each month = 20% of next month's production needs

The policy was met as on 1st January.

Particulars January February
Peanut (in ounces) Jars (in units) Peanut (in ounces) Jars (in units)
Raw Material required as per Production budget 852000 35500 1608000 67000
Add: Closing inventory to be maintained as per Company's policy 321600 13400 245760 10240
(67000 * 20% *24) (67000 * 20% *1) (51200 * 20% *24) (51200 * 20% * 1)
Less: Opening inventory 170400 7100 321600 13400
(35500 * 20% *24) (35500 * 20% *1)
Raw Materials to be purchased 1003200 41800 1532160 63840

Note: Since the sales budget is not given for the month of May, the production budget could not be prepared for the month of April and in turn the Direct Materials purchase budget could not be prepared for the month of March.

ekkarill92 answered 1 year ago
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