Question

1. Production Budget and Direct Materials Purchases Budgets

   Peanut Land 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	40,000	72,000
   February	45,000	81,000
   March	60,000	108,000
   April	42,000	75,600

   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 37,000 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 20% 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 Land 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

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   2. Prepare a direct materials purchases budget for jars for the months of January and February.

   Peanut Land 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

   Feedback

   Prepare a direct materials purchases budget for peanuts for the months of January and February.

   Peanut Land 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

Peanut Land Inc.
Production Budget
For the First Quarter of the Year
	January	February	March	Total
Sales	40000	45000	60000	145000
Desired ending inventory	9000	12000	8400	8400
Total needs	49000	57000	68400	153400
Less: Beginning inventory	37000	9000	12000	37000
Units produced	12000	48000	56400	116400

.

Peanut Land Inc.
Direct Materials Purchases Budget for Jars
For January and February
	January	February	Total
Production	12000	48000	60000
Jar	1	1	1
Jars for production	12000	48000	60000
Desired ending inventory	9600	11280	11280
Total needs	21600	59280	71280
Less: Beginning inventory	2400	9600	2400
Jars purchased	19200	49680	68880

.

Peanut Land Inc.
Direct Materials Purchases Budget for Peanuts
For January and February
	January	February	Total
Production	12000	48000	60000
Ounces	24	24	24
Ounces for production	288000	1152000	1440000
Desired ending inventory	230400	270720*	270720
Total needs	518400	1422720	1710720
Less: Beginning inventory	57600	230400	57600
Ounces purchased	460800	1192320	1653120

*56400 x 24 x 20%