Question

Production Budget and Direct Materials Purchases Budgets

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	140,000
February	45,000	90,000
March	60,000	120,000
April	54,000	108,000

Company policy requires that ending inventories for each month be 15% of next month's sales. At the beginning of January, the inventory of peanut butter is 33,000 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.

Peanut Land Inc.
Production Budget
For the First Quarter of the Year
	January	February	March	Total
Sales
Desired ending inventory
Total needs
Less: Beginning inventory
Units produced

2. Prepare a direct materials purchases budget for jars for the months of January and February.

Peanut Land Inc.
Direct Materials Purchases Budget for Jars
For January and February
	January	February	Total
Production
Jar
Jars for production
Desired ending inventory
Total needs
Less: Beginning inventory
Jars purchased

Prepare a direct materials purchases budget for peanuts for the months of January and February.

Peanut Land Inc.
Direct Materials Purchases Budget for Peanuts
For January and February
	January	February	Total
Production
Ounces
Ounces for production
Desired ending inventory
Total needs
Less: Beginning inventory
Ounces purchased

Answer 1

Peanut Land Inc.
Production Budget
For the First Quarter of the Year
	January	February	March	Total
Sales	70,000	45,000	60,000	1,75,000
Desired ending inventory	6,750	9,000	8,100	23,850
Total needs	76,750	54,000	68,100	1,98,850
Less: Beginning inventory	33,000	6,750	9,000	48,750
Units produced	43,750	47,250	59,100	1,50,100

Peanut Land Inc.
Direct Materials Purchases Budget for Jars
For January and February
	January	February	Total
Production	43750	47250	91000
Jar
Jars for production	43750	47250	91000
Desired ending inventory	9,450	11,820	21,270
Total needs	53200	59070	112270
Less: Beginning inventory	-	9,450	9,450
Jars purchased	53200	49,620	102820

Peanut Land Inc.
Direct Materials Purchases Budget for Peanuts
For January and February
	January	February	Total
Production	43,750	47,250	91,000
Ounces	24	24
Ounces for production	10,50,000	11,34,000	21,84,000
Desired ending inventory	2,26,800	2,83,680	5,10,480
Total needs	12,76,800	14,17,680	26,94,480
Less: Beginning inventory	-	2,26,800	2,26,800
Ounces purchased	12,76,800	11,90,880	24,67,680