Question

Note: I need a step by step answer to the question with an explanation of your answers:

White Corporation’s budget calls for the following sales for next year: Quarter 1 90,000 Quarter 3 68,000 Quarter 2 76,000 Quarter 4 96,000 Each unit of the product requires 3 pounds of direct materials. The company’s policy is to begin each quarter with an inventory of product equal to 5% of that quarter’s estimated sales requirements and an inventory of direct materials equal to 20% of that quarter’s estimated direct materials requirements of production. Required Determine the production and materials purchased budgets for the second quarter.

Answer 1

For the second quarter, following are the required data:

• Production = 75600 Units
• Direct Materials Purchased = 223080 Pounds

For clarification for the same, kindly go through the working notes

Working Notes:

Table Showing Calculation of Production and Direct Material Budgets

	Quarter 1	Quarter 2	Quarter 3	Quarter 4
Sales Estimate	90000	76000	68000	96000
Opening Balance of Finished Goods1	(4500)	(3800)	(3400)	(4800)
Closing Balance of Finished Goods2	3800	3400	4800	0*
Production3	89300	75600	69400	91200
Direct Material Required4	267900	226800	208200	273600
Opening Balance of Direct Material5	(53580)	(45360)	(41640)	(54720)
Closing Balance of Direct Material6	45360	41640	54720	0*
Direct Materials Purchased7	259680	223080	221280	218880

Footnotes:

1. Opening balance of Finished Goods = 5% of Sales estimated for the quarter

2. Closing Balance of Finished Goods = Opening Balance calculated for next quarter

3. Production = Sales Estimate + Opening balance of Finished Goods + Closing Balance of Finished Goods

Note: the correct formula should be Production = Sales Estimate - Opening balance of Finished Goods + Closing Balance of Finished Goods, but since the Opening Balance for finished goods has been presented as negative, we had to add it here.

4. Direct Material Required = Production X Direct Material used per unit [Given as 3 pounds]

5. Opening Balance of Direct Material = 20% of Direct Material required for the quarter

6. Closing Balance of Direct Material = Opening Balance calculated for next quarter

7. Direct Materials Purchased = Direct Material Required + Opening Balance of Direct Material + Closing Balance of Direct Material

Note: the correct formula should be Production = Sales Estimate - Opening balance of Direct Material + Closing Balance of Direct Material. but since the Opening balance for Direct Material has been presented as negative, we had to add it here.

* The Closing Balance for both, Finished Goods and Direct Material, in Quarter 4 has been assumed to be 0 since we have no way to calculate the same.