Question

Johnson Industries manufactures a popular interactive stuffed animal for children that requires four computer chips inside each toy. The company pays $3 for each computer chip. To help to guard against stockouts of the computer​ chip, Johnson Industries has a policy that states that the ending inventory of computer chips should be at least 30​% of the following​ month's production needs. The production schedule for the first four months of the year is as​ follows:

Stuffed animals to be produced

January. . . . . . . . . . .5,900

February. . . . . . . . . . .4,000

March. . . . . . . . . . .4,700

April. . . . . . . . . . .4,600

Prepare a direct materials budget for the first quarter that shows both the number of computer chips needed and the dollar amount of the purchases in the budget.

Prepare the direct materials budget by first calculating the total quantity​ needed, then complete the budget.

Johnson Industries
Direct Materials Budget
For the Months of January through March
	January	February	March	Quarter
Units to be produced
Multiply by: Quantity of direct materials needed per unit
Quantity needed for production
Plus: Desired ending inventory of direct materials
Total quantity needed

Less: Beginning inventory of direct materials
Quantity to purchase
Multiply by: Cost per unit
Total cost of direct material purchases

Answer 1

Johnson Industries
Direct materials budget
For the months of January through March
	January	February	March	Quarter
Units to be produced	5900	4000	4700	14600
Multiply by : Quantity of direct materials needed per unit	4	4	4	4
Quantity needed for production	23600	16000	18800	58400
Plus : Desired ending inventory of direct materials [ 30% of following month's production needs ]	4800	5640	5520	5520
Total quantity needed	28400	21640	24320	63920
Less : Beginning inventory of direct materials	7080	4800	5640	7080
Quantity to purchase	21320	16840	18680	56840
Multiply by : Cost per unit	3	3	3	3
Total cost of direct materials purchase	63960	50520	56040	170520

Working note :
1) Beginning inventory of January = Ending inventory of December = 30% * January month's production needs = 30% * 23600	7080
2) Ending inventory of March = 30% * April month's production needs = 30% * ( 4600 * 4 )	5520