Question

Fuqua Company’s sales budget projects unit sales of part 198Z of 10,100 units in January, 12,600 units in February, and 13,700 units in March. Each unit of part 198Z requires 3 pounds of materials, which cost $4 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.

Prepare a production budget for January and February 2020.

Prepare a direct materials budget for January 2020.

Answer 1

Production budget
	January	February
Budgeted unit sales	10100	12600
(+) Desired ending inventory ( 20% of next month's expected unit sales )	2520 [ 20%*12600 ]	2740 [ 20%*13700 ]
Total units needed	12620	15340
(-) Beginning inventory	2020	2520
Units to be produced	10600	12820
Note : Beginning inventory for January = Ending inventory of December = 20% * January month's expected unit sales = 20% * 10100	2020

Direct materials budget
	January
Units to be produced	10600
(*) Raw materials needed per unit	3
Raw materials needed for production	31800
(+) Desired ending inventory ( 40% of next month's production requirement = 40% * 12820 * 3 )	15384
Total raw materials needed	47184
(-) Beginning inventory	12720
Raw materials to be purchased	34464
(*) Cost of raw materials per pound	4
Cost of raw materials to be purchased	137856
Note : Beginning inventory of raw materials for January = Ending inventory of raw materials of December = 40% * Raw materials needed for production of January = 40% * 31800	12720