15. Garver Industries has budgeted the following unit sales: 2017 January Februa

Question

15. Garver Industries has budgeted the following unit sales: 2017 January February March April May Units 10.000 8,000 9,000 11,000 15,000 The finished goods units on hand on December 31, 2016, was 2,000 units. Each unit requires 3 pounds of raw materials that are estimated to cost an average of $4 per pound. It is the company's policy to maintain a finished goods inventory at the end of each month equal to 20% of next month's anticipated sales. They also have a policy of maintaining a raw materials inventory at the end of, each month equal to 30% of the pounds needed for the following month's production. There were 8,640 pounds of raw materials on hand at December 31, 2016 Instructions For the first quarter of 2017, prepare (1) a production budget and (2) a direct materials budget.

Explanation / Answer

April units: 11,000 × 20%. = 2200

GARVER INDUSTRIES
Production Budget
For the Quarter Ended March 31, 2017 Expected unit sales 10000 8000 9000 Desired ending finished goods units 1600 1800 2200 Total required units 11600 9800 11200 Less: Beginning finished goods units 2000 1600 1800 Required production units 9600 8200 9400 27200

April units: 11,000 × 20%. = 2200

GARVER INDUSTRIES
Direct Materials Budget
For the Quarter Ended March 31, 2017 January February March Total Units to be produced 9600 8200 9400 Direct materials per unit 3 3 3 Total pounds needed for production 28800 24600 28200 Desired ending direct materials (pounds) 7380 8460 10620 Total materials required 36180 33060 38820 Less: Beginning direct materials (pounds) 8640 7380 8460 Direct materials purchases 27540 25680 30360 Cost per pound 4 4 4 Total cost of direct materials purchases 110160 102720 121440 334320 *11000+(15000*20%)-2200 = 11800 11800*3 = 35400*30% = 10620

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