Question

Oak Creek 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 1,000,000 units. Quarterly sales are 20%, 25%, 25%, and 30%, respectively. The sales price is expected to be $40 per unit for the first three quarters and $46 per unit beginning in the fourth quarter. Sales in the first quarter of 2021 are expected to be 10% higher than the budgeted sales for the first quarter of 2020.

Production: Management desires to maintain the ending finished goods inventories at 20% of the next quarter's budgeted sales volume.

Direct materials: Each unit requires 2 kg of raw materials at a cost of $10 per kilogram. Management desires to maintain raw materials inventories at 10% of the next quarter's production requirements. Assume the production requirements for the first quarter of 2021 are 630,000 kg.

1. Prepare the sales budget by quarters for 2020.

2. Prepare the production budget by quarters for 2020.

3. Prepare the direct materials budget by quarters for 2020.

Answer 1

Answer 1
OAK CREEK COMPANY
Sales Budget
For the year ending December 31, 2020
	Quarters				Year
	1	2	3	4
Expected units sales	200000	250000	250000	300000	1000000
Unit selling price	$                40	$                  40	$                  40	$                  40	$                  40
Total Sales	$ 8,000,000	$ 10,000,000	$ 10,000,000	$ 12,000,000	$ 40,000,000
Answer 2
OAK CREEK COMPANY
Production budget
For the year ending December 31, 2020
	Quarters				Year
	1	2	3	4
Expected unit sales	200000	250000	250000	300000
Add:
Desired ending finished goods units	50000	50000	60000	44000
Total required units	250000	300000	310000	344000
less:
Beginning finished goods units	40000	50000	50000	60000
Required production units	210000	250000	260000	284000	1004000
Answer 3
OAK CREEK COMPANY
Direct Material Budget
For the year ending December 31, 2020
	Quarters				Year
	1	2	3	4
Units to be produced	210000	250000	260000	284000
Direct materials per unit in kg	2	2	2	2
Total kg need for production	420000	500000	520000	568000
Add:
Desired ending direct material goods units	50000	52000	56800	63000
Total required units
less:
Beginning Raw material goods units	42000	50000	52000	56800
Direct material purchases	428000	502000	524800	574200
Cost per kg	$                10	$                  10	$                  10	$                  10
Total cost of direct material purchases	$ 4,280,000	$    5,020,000	$    5,248,000	$    5,742,000	$ 20,290,000