Question

Peanut Land Inc. produces all-natural organic peanut butter. The peanut butter is sold in 12-ounce jars. The sales budget for the first four months of the year is as follows: Unit Sales Dollar Sales ($) January 70,000 147,000 February 65,000 136,500 March 60,000 126,000 April 62,000 130,200 Company policy requires that ending inventories for each month be 10% of next month's sales. At the beginning of January, the inventory of peanut butter is 31,000 jars. Each jar of peanut butter needs two raw materials: 24 ounces of peanuts and one jar. 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 on January 1. Required: 1. Prepare a production budget for the first quarter of the year. Show the number of jars that should be produced each month as well as for the quarter in total. 2. Prepare a direct materials purchases budget for jars for the months of January and February. Prepare a direct materials purchases budget for peanuts for the months of January and February.

Answer 1

Statement Showing Production Budget
	Jan	Feb	Mar	Q-1 Total
Sales	70,000	65,000	60,000	195,000
Desired Ending inventory (10% of Next Month Sale)	6,500	6,000	6,200	6,200
Total Unit Needed	76,500	71,000	66,200	201,200
Less: Beg. Inventory	7,000	6,500	6,000	7,000
Production required (No of Jar)	69,500	64,500	60,200	194,200
Statement Showing Raw material Purchase Budget- Peanut Butter
	Jan	Feb	Mar	Apr
Production Unit (in Jar)	69,500	64,500	60,200	194,200
RM Required per Jar : 24 Ounce	1,668,000	1,548,000	1,444,800	4,660,800
Desired Ending Inventory( 20% of Next Month)	309,600	288,960	267,840	267,840
Total Raw material Required ( in Ounce)	1,977,600	1,836,960	1,712,640	4,928,640
Less: Opening Inventory	333,600	309,600	288,960	333,600
Purchase Quantity Required ( in Ounce)	1,644,000	1,527,360	1,423,680	4,595,040
Statement Showing Raw material Purchase Budget- for Jar
	Jan	Feb	Mar	Total
Production Unit (in Jar)	69,500	64,500	60,200	194,200
RM Required per Jar : 1 Jar	69,500	64,500	60,200	194,200
Desired Ending Inventory( 20% of Next Month)	12,900	12,040	11,160	11,160
Total Raw material Required ( No. of Jar)	82,400	76,540	71,360	205,360
Less: Opening Inventory	31,000	12,900	12,040	31,000
Purchase Quantity Required ( No. of Jar)	51,400	63,640	59,320	174,360