Micro Products. Inc., has developed a very powerful electronic calculator. Each

Question

Micro Products. Inc., has developed a very powerful electronic calculator. Each calculator requires two small chips" that cost $7 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: 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 stockouts. For this reason, the inventory of chips at the end of a quarter must equal 20% of the following quarter's production needs. A total of 23.200 chips will be on hand to start the first quarter of Year 2. Prepare a direct materials budget for chips, by quarter and in total, for Year 2. (Do not round intermediate calculations.)

Explanation / Answer

Particulars Year 2 First Second Third Fourth Year Required Production in Calculators 58,000 81,000 1,51,000 1,02,000 3,92,000 Number of chips per calculator 2 2 2 2 2 Production needs - Chips 1,16,000 1,62,000 3,02,000 2,04,000 7,84,000 Add: Ending Inventory 32,400 60,400 40,800 1,56,800 28,800 Total Needs 1,48,400 2,22,400 3,42,800 3,60,800 8,12,800 Less: Beginning Inventory 23,200 32,400 60,400 40,800 1,56,800 Required Purchases - Chips 1,25,200 1,90,000 2,82,400 3,20,000 6,56,000 Total Cost of Purchases 8,76,400 13,30,000 19,76,800 22,40,000 45,92,000

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