Question

Production Budget and Direct Materials Purchases Budgets

Peanut-Fresh 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	48,000		100,800
February	46,000		96,600
March	55,000		121,000
April	58,000		125,200

Company policy requires that ending inventories for each month be 20% of next month's sales. At the beginning of January, the inventory of peanut butter is 14,500 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 10% 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-Fresh 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. Do not include a multiplication symbol as part of your answer.

Peanut-Fresh 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. Do not include a multiplication symbol as part of your answer.

Peanut-Fresh 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

Solution

Production Budget
For the First Quarter of the Year
	January	February	March	Total
Sales	48000	46000	55000	149000
Desired ending inventory	9200	11000	11600	11600
Total needs	57200	57000	66600	160600
Less: Beginning inventory	14500	9200	11000	14500
Units produced	42700	47800	55600	146100

.

Direct Materials Purchases Budget for Jars
For January and February
	January	February	Total
Production	42700	47800	90500
Jar	1	1	1
Jars for production	42700	47800	90500
Desired ending inventory	4780	5560	5560
Total needs	47480	53360	96060
Less: Beginning inventory	4270	4780	4270
Jars purchased	43210	48580	91790

.

Direct Materials Purchases Budget for Peanuts
For January and February
	January	February	Total
Production	42700	47800	90500
Ounces	24	24	24
Ounces for production	1024800	1147200	2172000
Desired ending inventory	114720	133440	133440
Total needs	1139520	1280640	2305440
Less: Beginning inventory	102480	114720	102480
Ounces purchased	1037040	1165920	2202960