Question

Preparing a Direct Materials Purchases Budget

Patrick Inc. makes industrial solvents sold in five-gallon drums. Planned production in units for the first three months of the coming year is:

January	40,000
February	50,000
March	65,000

Each drum requires 6 gallons of chemicals and one plastic drum. 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 for the ending inventory of December in the prior year. The cost of one gallon of chemicals is $2.00. The cost of one drum is $1.60.

Required:

1. Calculate the ending inventory of chemicals in gallons for December of the prior year, and for January and February. What is the beginning inventory of chemicals for January? Round your answers to the nearest whole gallon.

Ending inventory for December	gallons
Ending inventory for January	gallons
Ending inventory for February	gallons
Beginning inventory for January	gallons

2. Prepare a direct materials purchases budget for chemicals for the months of January and February. Round Dollar purchases to the nearest dollar. Round all the other values to the nearest whole unit. Do not include a multiplication symbol as part of your answer.

Patrick Inc.
Direct Materials Purchases Budget - Chemicals in Gallons
For the Months of January and February
	January	February
Production in units
Gallons per unit
Gallons for production
Desired ending inventory
Needed
Less: Beginning inventory
Purchases
Price per gallon	$	$
Dollar purchases	$	$

3. Calculate the ending inventory of drums for December of the prior year, and for January and February. Round your answers to the nearest whole unit.

Ending inventory for December	units
Ending inventory for January	units
Ending inventory for February	units

4. Prepare a direct materials purchases budget for drums for the months of January and February. Round Dollar purchases to the nearest dollar. Round all the other values to the nearest whole unit. Do not include a multiplication symbol as part of your answer.

Patrick Inc.
Direct Materials Purchases Budget - Drums
For the Months of January and February
	January	February
Production in units
Drums per unit
Drums for production
Desired ending inventory
Needed
Less: Beginning inventory
Purchases
Price per drum	$	$
Dollar purchases	$	$

Answer 1

1)						Gallons
	Ending inventory for december			(40,000*6*20%)		48000
	ending inventory for January			(50,000*6*20%)		60000
	ending inventory for february			(65000*6*20%)		78000
	beginning inventory for January					48,000
2)	Direct Materials purchase Budget-Chemicals in galons
				Jan	Feb
	production in units			40,000	50,000
	Gallons per unit			6	6
	Gallons for production			240000	300000
	Desired ending inventory			60,000	78,000
	Needed			300000	378000
	less:Beginning inventory			48,000	60,000
	purchases			252,000	318,000
	price per gallon			2	2
	dollar purchases			504000	636000
						units
3)	Ending inventory for december			(40,000*20%)		8,000
	ending inventory for January			(50000*20%)		10,000
	ending inventory for february			(65000*20%)		13000
4)	Direct materials purchase budget-Drums
				Jan	Feb
	production in units			40,000	50,000
	Drums per unit			1	1
	Drums for production			40,000	50,000
	Desired ending inventory			10,000	13,000
	Needed			50,000	63,000
	less:Beginning inventory			8,000	10,000
	purchases			42,000	53,000
	price per drum			1.60	1.60
	dollar purchases			67200	84800