Question

Pargo Company is preparing its master budget for 2020. Relevant data pertaining to its sales, production, and direct materials budgets are as follows.

Sales. Sales for the year are expected to total 2,000,000 units. Quarterly sales are 18%, 26%, 23%, and 33%, respectively. The sales price is expected to be $38 per unit for the first three quarters and $45 per unit beginning in the fourth quarter. Sales in the first quarter of 2021 are expected to be 15% higher than the budgeted sales for the first quarter of 2020.

Production. Management desires to maintain the ending finished goods inventories at 25% of the next quarter’s budgeted sales volume.

Direct materials. Each unit requires 2 pounds of raw materials at a cost of $10 per pound. Management desires to maintain raw materials inventories at 10% of the next quarter’s production requirements. Assume the production requirements for first quarter of 2021 are 504,000 pounds.

Prepare the sales, production, and direct materials budgets by quarters for 2020.

Answer 1

SALES BUDGET
			Q1	Q2	Q3	Q4	Year
Budgeted Sales units		3,60,000	5,20,000	4,60,000	6,60,000	20,00,000
Selling price per unit		38	38	38	45
Total Sales		1,36,80,000	1,97,60,000	1,74,80,000	2,97,00,000	8,06,20,000
PRODUCTION BUDGET
			Q1	Q2	Q3	Q4	Year	Q1
Budgeted Sales Units		3,60,000	5,20,000	4,60,000	6,60,000	20,00,000	414000
Add: Desired Ending Finished inventory	1,30,000	1,15,000	1,65,000	1,03,500	1,03,500
Total Needs		4,90,000	6,35,000	6,25,000	7,63,500	21,03,500
Less: Beginning Finished Inventory	90,000	1,30,000	1,15,000	1,65,000	90,000
Required Production in units	4,00,000	5,05,000	5,10,000	5,98,500	20,13,500
RAW MATERIAL PURCHASE BUDGET
FRUITS			Q1	Q2	Q3	Q4	Year
Budgeted Production units	4,00,000	5,05,000	5,10,000	5,98,500	20,13,500
RM required per unit		2	2	2	2	2
Total RM requiremnt		8,00,000	10,10,000	10,20,000	11,97,000	40,27,000
Add: Desired Ending Inventory	1,01,000	1,02,000	1,19,700	50,400	50,400
Total needs		9,01,000	11,12,000	11,39,700	12,47,400	40,77,400
Less: Beginning Inventory	80,000	1,01,000	1,02,000	1,19,700	80,000
Purchase Units		8,21,000	10,11,000	10,37,700	11,27,700	39,97,400
Multiply: Cost per unit	10	10	10	10	10
Budgeted Purchase amount	8210000	10110000	10377000	11277000	39974000