Question

1. 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 4 months of the year is as follows:

   	Unit Sales		Dollar Sales ($)
   January	36,000		108,000
   February	38,000		114,000
   March	41,000		123,000
   April	43,000		129,000

   Company policy requires that ending inventories for each month be 25% of next month’s sales. At the beginning of January, the inventory of peanut butter is 9,300 jars.

   Each jar of peanut butter needs two raw materials: 24 ounces of peanuts and one jar set (a glass jar and lid). Company policy requires that ending inventories of raw materials for each month be 10% 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
   Sales
   Desired ending inventory
   Total needs
   Less: Beginning inventory
   Units produced

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

   Peanut Land Inc.
   Direct Materials Purchases Budget for Jars
   For January and February
   	January	February	Total
   Production
   Number of Jars
   Jars for production
   Desired ending inventory
   Total needs
   Less: Beginning inventory
   Jars purchased

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

   Peanut Land Inc.
   Direct Materials Purchases Budget for Peanuts
   For January and February
   	January	February	Total
   Production
   Ounces
   Ounces for production
   Desired ending inventory
   Total needs
   Less: Beginning inventory
   Ounces purchased

Answer 1

1.

Peanut Land Inc.
Production Budget
For the First Quarter of the Year
	January	February	March	Total
Sales	36000	38000	41000	115000
Desired ending inventory	9500	10250	10750	10750
Total needs	45500	48250	51750	125750
Less: Beginning inventory	9300	9500	10250	9300
Units produced	36200	38750	41500	116450

2.

Peanut Land Inc.
Direct Materials Purchases Budget for Jars
For January and February
	January	February	Total
Production	36200	38750	74950
Number of Jars	1	1	1
Jars for production	36200	38750	74950
Desired ending inventory	3875	4150	4150
Total needs	40075	42900	79100
Less: Beginning inventoy	3620	3875	3620
Jars purchased	36455	39025	75480
Peanut Land Inc.
Direct Materials Purchases Budget for Peanuts
For January and February
	January	February	Total
Production	36200	38750	74950
Ounces	24	24	24
Ounces for production	868800	930000	1798800
Desired ending inventory	93000	99600	99600
Total needs	961800	1029600	1898400
Less: Beginning inventoy	86880	93000	86880
Ounces purchased	874920	936600	1811520