Question

Micro Products Inc. has developed a very powerful electronic calculator. Each calculator requires three small chips that cost $3 each and are purchased from an overseas supplier. Micro Products has prepared a production budget for the calculator by quarters for year 2 and for the first quarter of year 3, as shown below: Year 2 Second Third 96,000 156,000 First 66, 000 Budgeted production, in calculators Year 3 First 86, 000 Fourth 106,000 The chip used in production of the calculator is sometimes hard to get, so it is necessary to carry large inventories as a precaution against stock-outs. For this reason, the inventory of chips at the end of a quarter must be equal to 15% of the following quarter's production needs. A total of 42,000 chips will be on hand to start the first quarter of year 2. Required: Prepare a direct materials purchases budget for chips, by quarter and in total, for year 2. At the bottom of your budget, show the dollar amount of purchases for each quarter and for the year in total. Micro Products, Inc. Direct Materials Budget - Year 2 Quarter First Second Third Fourth Year Required production in calculators Number of chips per calculator Production needs—chips Total needs 0 0 0 0 Required purchases—chips Total cost of purchases I

Answer 1

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Answer Micro Products Inc. Direct Material Budget - Year 2 Quartar First Second Third 66000 96000 156000 Fourth 106000 Year 424000 3 3 7 Required production in calculators 8 Number of chips per calculators 9 Production needs chips 10 Desired ending inventory 198000 318000 1272000 38700 11 43200 (288000*.15) 241200 1310700 288000 70200 (468000*.15) 358200 43200 315000 945000 (315000*3) 468000 47700 (318000*.15) 515700 70200 445500 1336500 (445500*3) 12 Total needs 13 Less Beginning inventory 14 Required Purchases - chips 15 Total cost of purchases 42000 38700 (86000*3*.15) 356700 47700 309000 927000 (309000*3) 42000 199200 1268700 3806100 (1268700*3) 597600 (199200*3) 16 18 Note the unbold amounts are not part of final answer. These are just for understanding purpose only. 19