Question

Industries manufactures a popular interactive stuffed animal for children that requires

two

computer chips inside each toy. The company pays

$ 1

for each computer chip. To help to guard against stockouts of the computer chip,

McKnightMcKnight

Industries has a policy that states that the ending inventory of computer chips should be at least

20 %

of the following month's production needs. The production schedule for the first four months of the year is as follows:

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Requirement

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.

McKnight Industries
Direct Materials Budget
For the Months of January through March
	January	February	March	Quarter
Units to be produced	5,100	4,900	4,800	14,800
Multiply by: Quantity of direct materials needed per unit	2	2	2	2
Quantity needed for production	10,200	9,800	9,600	29,600
Plus: Desired ending inventory of direct materials	1,960	1,920	1,680	1,680
Total quantity needed	12,160	11,720	11,280	31,280

Less: Beginning inventory of direct materials
Quantity to purchase
Multiply by: Cost per unit	1	1	1
Total cost of direct material purchases

Answer 1