Question

(CGA adapted) Prepare a production and a direct materials budget E9.8 (LO 2), AP Fuqua Company's sales budget projects unit sales of part 1982 of 10,000 units in January, 12,000 units in February, and 13,000 units in March. Each unit of part 198Z requires 4 pounds of materials, which cost $2 per pound. Fuqua Company desires its ending raw materials inventory to equal 40% of the next month's production requirements, and its ending finished goods inventory to equal 20% of the next month's expected unit sales. These goals were met at December 31, 2019.

Answer 1

a.

Production Budget
	January	February	March
Budgeted Sales units	10000	12000	13000
Add : Desired Ending Inventory	2400	2600
Units Required	12400	14600
Less : Beginning Inventory	2000	2400
Production Required	10400	12200

Ending Inventory = 20% of next month sales

b.

Purchase Budget
	January	February
Production Required	10400	12200
Material per unit (pounds)	4	4
Production Needs	41600	48800
Budgeted Ending inventory	19520
Total DM Required	61120
Beginning Inventory	16640
Budgeted Purchases	44480
Standard Price per pound	$        2.00
Budgeted Purchases Cost	$   88,960

Ending Inventory = 40% of next month production needs