Question

Fuqua Company’s sales budget projects unit sales of part 198Z of 10,800 units in January, 12,700 units in February, and 13,200 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, 2016.

A: Prepare a projected budget for Jan and Feb 2017

B: Prepare a direct material budget for Jan 2017

Answer 1

Solution:

Production Budget:

Fuqua Company
Production Budget
	January	February
Expected Unit Sales	10,800	12,700
Add: Desired Ending Finished Goods Inventory (12,700 * 20%) & (13,200 * 20%)	2,540	2,640
Total Required Units	13,340	15,340
Less: Beginning Finished Goods Inventory (10,800 * 20%) & (12,700 * 20%)	2,160	2,540
Required Production Units	11,180	12,800

Direct Materials Budget:

Fuqua Company
Direct Materials Budget
For the Month Ending January 31, 2017
	January
Units to Be Produced	11,180
Direct Materials Pounds per Unit	3
Total Pounds needed for Production (11,180 * 3)	33,540
Add: Desired Pounds in Ending Direct Materials Inventory [(12,800 * 3) * 40%]	15,360
Total Materials Required	48,900
Less: Beginning Direct Materials (Pounds) [(11,180 * 3) * 40%]	13,416
Direct Materials Purchases	35,484
Cost per Pound	4
Total Cost of Direct Materials Purchases	141,936