Question

Pargo 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 1,700,000 units. Quarterly sales are 18%, 23%, 24%, and 35%, respectively. The sales price is expected to be $41 per unit for the first three quarters and $43 per unit beginning in the fourth quarter. Sales in the first quarter of 2021 are expected to be 15% higher than the budgeted sales for the first quarter of 2020.

Production. Management desires to maintain the ending finished goods inventories at 25% of the next quarter’s budgeted sales volume.

Direct materials. Each unit requires 2 pounds of raw materials at a cost of $12 per pound. Management desires to maintain raw materials inventories at 10% of the next quarter’s production requirements. Assume the production requirements for first quarter of 2021 are 494,000 pounds.

Prepare the sales, production, and direct materials budgets by quarters for 2020.
Pargo 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 1,700,000 units. Quarterly sales are 18%, 23%, 24%, and 35%, respectively. The sales price is expected to be $41 per unit for the first three quarters and $43 per unit beginning in the fourth quarter. Sales in the first quarter of 2021 are expected to be 15% higher than the budgeted sales for the first quarter of 2020. Production. Management desires to maintain the ending finished goods inventories at 25% of the next quarter's budgeted sales volume. Direct materials. Each unit requires 2 pounds of raw materials at a cost of $12 per pound. Management desires to maintain raw materials inventories at 10% of the next quarter's production requirements. Assume the production requirements for first quarter of 2021 are 494,000 pounds. Prepare the sales, production, and direct materials budgets by quarters for 2020. PARGO COMPANY Sales Budget Quarter # # | | 1 A LA | |

Answer 1

a)

PARGO COMPANY SALES BUDGET FOR THE YEAR ENDED DECEMBER 31 2020
	QUARTER
	1	2	3	4	Year
unit sales	1700000*18%= 306000	1700000*23%= 391000	1700000*24%= 408000	1700000*35%= 595000	1700000
Unit price	41	41	41	43
Total sales (a*b)	12,546,000	16,031,000	16,728,000	25,585,000	70,890,000

b)

PARGO COMPANY DIRECT MATERIAL BUDGET FOR THE YEAR ENDED DECEMBER 31 2020
	Quarter
	1	2	3	4	Year
units to be produced	327250	395250	454750	534225
material requirement per unit	2	2	2	2
Total material required for production	654500	790500	909500	1068450
Desired ending raw material inventory	790500*10%=79050	90950	106845	49400 (494000*10%)
Total needs	733550	881450	1016345	1117850
less:Beginning raw material inventory	- 65450   (654500*10%)	-79050	-90950	-106845
Material needs to be purchased	668100	802400	925395	1011005
cost per pound	12	12	12	12
Total cost of material purchase	8017200	9628800	11104740	12132060	40,882,800

Working:

1)Sales of first quarter of 2021 = sales of first quarter of 2020 (1+%increase)

                    = 306000 (1+.15)

                    = 351900

2)

PRODUCTION BUDGET
	1	2	3	4	1 quarter of 2021
Unit sales	306000	391000	408000	595000	351900
Desired ending finished goods inventory	391000*25%= 97750	102000	148750	87975
less:Beginning finished goods inventory	-76500 [306000*25%]	-97750	-102000	-148750
Units to be produced	327250	395250	454750	534225