Question

E13-6  

Prepare production and direct materials budgets by quarters for 6 months.

(LO 2), AP

On January 1, 2017, the Hardin Company budget committee has reached agreement on the following data for the 6 months ending June 30, 2017.

• Sales units: First quarter 5,000; second quarter 6,000; third quarter 7,000.
• Ending raw materials inventory: 40% of the next quarter's production requirements.
• Ending finished goods inventory: 25% of the next quarter's expected sales units.
• Third-quarter production: 7,200 units.

The ending raw materials and finished goods inventories at December 31, 2016, follow the same percentage relationships to production and sales that occur in 2017. Three pounds of raw materials are required to make each unit of finished goods. Raw materials purchased are expected to cost $4 per pound.

Instructions

(a)

Prepare a production budget by quarters for the 6-month period ended June 30, 2017.

(b)

Prepare a direct materials budget by quarters for the 6-month period ended June 30, 2017.

Answer 1

a
	Production Budget
	For the Six Months Ending June 30, 2017
	1	2	Six months
Expected Unit Sales	5000	6000
Add: Desired ending Finished goods units	1500	1750
Total Required Units	6500	7750
Less: Beginning Finished goods units	1250	1500
Required Production Units	5250	6250	11500
b
	Direct materials budget
	For the Six Months Ending June 30, 2017
	1	2	Six months
Units to be produced	5250	6250
Direct materials per unit	3	3
Total pounds needed for production	15750	18750
Add: Desired ending Direct materials	7500	8640
Total materials required	23250	27390
Less: Budgeted Beginning materials	6300	7500
Direct materials purchases	16950	19890
Cost per pound	4	4
Total cost of direct materials purchases	67800	79560	147360

Workings:

Desired ending Finished goods units:

Q1 = 6000*25%=1500

Q2 = 7000*25%=1750

Beginning Finished goods units

Q1 = 5000*25%=1250

Desired ending Direct materials:

Q1 = 18750*40%=7500

Q2=7200*3*40%=8640

Budgeted Beginning materials:

Q1 = 15750*40%=6300