Question

Exercise 9-3 Direct Materials Purchases Budget (LO2] Micro Products Inc. has developed a very powerful electronic calculator. Each calculator requires three small chips that cost $3 each and are purchased from an overseas supplier. Micro Products has prepared a production budget for the calculator by quarters for year 2 and for the first quarter of year 3, as shown below: Year 2 Second Third 186,090 166,000 First 76,099 Budgeted production, in calculators Year 3 First 96,000 Fourth 116,000 The chip used in production of the calculator is sometimes hard to get, so it is necessary to carry large inventories as a precaution against stock-outs. For this reason, the inventory of chips at the end of a quarter must be equal to 15% of the following quarter's production needs. A total of 52,000 chips will be on hand to start the first quarter of year 2 Required: Prepare a direct materials purchases budget for chips, by quarter and in total, for year 2. At the bottom of your budget, show the dollar amount of purchases for each quarter and for the year in total. Micro Products, Inc. Direct Materials Budget - Year 2 Quarter First Second Third Required production in calculators Number of chips per calculator Production needs-chips Fourth Year

Answer 1

Answer:

	Direct material budget :
									First	Second	Third	Fourth	Year
A	Required production in calculators	76,000	1,06,000	1,66,000	1,16,000	4,64,000
B	Number of chips per calculators	3	3	3	3	3
C =A*B	Production needs-chips	2,28,000	3,18,000	4,98,000	3,48,000	13,92,000
D	Add:Desired ending inventory(15%of following Quarter"C")	47,700	74,700	52,200	43,200	43,200
E=C+D	Total needs	2,75,700	3,92,700	5,50,200	3,91,200	14,35,200
F	Less: Beginning inventory	-52,000	-47,700	-74,700	-52,200	-52,000
G	Required purchase	2,23,700	3,45,000	4,75,500	3,39,000	13,83,200
I	Total cost of purchase($3*G)	6,71,100	10,35,000	14,26,500	10,17,000	41,49,600
Desired ending inventory 4th quarter =96000*3*15%=43200