Question

ABC Inc. has compiled the following data in order to put together their first quarter operating budget for 20XX:

	January	February	March	April
Sales (units)	50,000	55,000	40,000	30,000

Additional information:

ABC sells each unit for $200.

Company policy is to have 30% of next month’s sales (in units) in ending finished goods inventory. This policy was met in December.

Company policy is to have 25% of next month’s production needs in ending raw materials inventory. The production needs for April is 120,000. This policy was met in December.

It takes four pounds of material to produce each unit and the cost is $5.00/pound.

Required:

1. Prepare a sales budget for the January, February and March and for the first quarter in total.

2. Prepare a production budget for January, February and March and for the first quarter in total.

3. Prepare a direct materials purchases budget for January, February and March and for the first quarter in total.

Answer 1

Sales Budget
	January	February	March	Total
Sales (units)	50000	55000	40000	145000
Sales Price Per Unit	200	200	200
Total Sales	$          10,000,000.00	$          11,000,000.00	$            8,000,000.00	$ 29,000,000.00

Production Budget
	January	February	March	Total
Sales	50000	55000	40000	145000
Add desired Ending Finshed goods 30% next month’s sales	16500	12000	9000	9000
Total Need	66500	67000	49000	154000
Less Beginning Inventory	15000	16500	12000	15000
Production Required	51500	50500	37000	139000

Production Budget
	January	February	March	Total
Sales	50000	55000	40000	145000
Add desired Ending Finshed goods 30% next month’s sales	16500	12000	9000	9000
Total Need	66500	67000	49000	154000
Less Beginning Inventory	15000	16500	12000	15000
Production Required	51500	50500	37000	139000

Purchase budget
	January	February	March	Total
Production Required	51500	50500	37000	139000
Meterial Per unit	4	4	4
Total material Needed for Prodution	206000	202000	148000	556000
Add desired Ending Inventory 25% of next month’s production needs	50500	37000	30000	30000
Less Beginning Direct Material	51500	50500	37000	51500
Direct Material to be Purchased	205000	188500	141000	534500
Cost per Pound	$                             5.00	$                             5.00	$                             5.00
Total Purchase cost	$            1,025,000.00	$                942,500.00	$                705,000.00	$    2,672,500.00