Question

Preparing a Direct Materials Purchases Budget

Patrick Inc. makes industrial solvents sold in 5-gallon drum containers. Planned production in units for the first 3 months of the coming year is:

January	45,000
February	50,000
March	60,000

Each drum requires 6 gallons of chemicals and one plastic drum container. Company policy requires that ending inventories of raw materials for each month be 20% of the next month's production needs. That policy was met for the ending inventory of December in the prior year. The cost of one gallon of chemicals is $2.00. The cost of one drum is $1.60.

Required:

1. Calculate the ending inventory of chemicals in gallons for December of the prior year, and for January and February. What is the beginning inventory of chemicals for January? Round your answers to the nearest whole gallon.

Ending inventory for December	gallons
Ending inventory for January	gallons
Ending inventory for February	gallons
Beginning inventory for January	gallons

2. Prepare a direct materials purchases budget for chemicals for the months of January and February. Round Dollar purchases to the nearest dollar. Round all the other values to the nearest whole unit. Do not include a multiplication symbol as part of your answer.

Patrick Inc.
Direct Materials Purchases Budget - Chemicals in Gallons
For the Months of January and February
	January	February
Production in units
Gallons per unit
Gallons for production
Desired ending inventory
Needed
Less: Beginning inventory
Purchases
Price per gallon	$	$
Dollar purchases	$	$

3. Calculate the ending inventory of drums for December of the prior year, and for January and February. Round your answers to the nearest whole unit.

Ending inventory for December	units
Ending inventory for January	units
Ending inventory for February	units

4. Prepare a direct materials purchases budget for drums for the months of January and February. Round Dollar purchases to the nearest dollar. Round all the other values to the nearest whole unit. Do not include a multiplication symbol as part of your answer.

Patrick Inc.
Direct Materials Purchases Budget - Drums
For the Months of January and February
	January	February
Production in units
Drums per unit
Drums for production
Desired ending inventory
Needed
Less: Beginning inventory
Purchases
Price per drum	$	$
Dollar purchases	$	$

Answer 1

Part 1	Calculation of Ending Inventory of Chemicals
		December	January	February
	Estimated Production for next month	45,000	50,000	60,000
	Ending Inventory in units(Estimated Production for next month*20%)	9,000	10,000	12,000
	Ending Inventory in gallons(Ending Inventory in units*6)	54,000 gallons	60,000 gallons	72,000 gallons
	Beginning Inventory for Jaunuary shall be equal to Ending Inventory of December which is 54,000 gallons
Part 2	Patrick Inc.
	Direct Materials Purchase Budget-Chemicals in Gallons
	For the months of January and February
		January	February
	Budgeted Production(in units)	45,000	50,000
	Gallons per unit	6	6
	Materials needed for production	270,000	300,000
	Add:Desired ending inventory	60,000	72,000
	Total materials requirement(lbs)	330,000	372,000
	Less:Budgeted beginning inventory(lbs)	(54,000)	(60,000)
	Materials to be purchased(lbs)	276,000	312,000
	Direct materials cost per lb.	$2.00	$2.00
	Total Budgeted direct materials	$552,000	$624,000
Part 3	Calculation of Ending Inventory of Drums
		December	January	February
	Estimated Production for next month	45,000	50,000	60,000
	Ending Inventory in units(Estimated Production for next month*20%)	9,000	10,000	12,000
	Ending Inventory in drum(Ending Inventory in units*1)	9,000 drums	10,000 drums	12,000 drums
	Beginning Inventory for Jaunuary shall be equal to Ending Inventory of December which is 9,000 drums
Part 4	Patrick Inc.
	Direct Materials Purchase Budget-Drums
	For the months of January and February
		January	February
	Budgeted Production(in units)	45,000	50,000
	Gallons per unit	1	1
	Materials needed for production	45,000	50,000
	Add:Desired ending inventory	10,000	12,000
	Total materials requirement(lbs)	55,000	62,000
	Less:Budgeted beginning inventory(lbs)	(9,000)	(10,000)
	Materials to be purchased(lbs)	46,000	52,000
	Direct materials cost per lb.	$1.60	$1.60
	Total Budgeted direct materials	$73,600	$83,200