Production Budget and Direct Materials Purchases Budgets Smee Inc. produces all-

Question

Production Budget and Direct Materials Purchases Budgets

Smee 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:

Company policy requires that ending inventories for each month be 10% of next month's sales. At the beginning of January, the inventory of peanut butter is 34,000 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.

2. Prepare a direct materials purchases budget for jars for the months of January and February. Do not include a multiplication symbol as part of your answer.

Prepare a direct materials purchases budget for peanuts for the months of January and February. Do not include a multiplication symbol as part of your answer.

Explanation / Answer

Smee, Inc Production Budget Month Detail Jan Feb Mar Sale Units                                                         50,000                80,000                40,000 Desired ending inventory                (80000*0.1),(40000*0.1),(58000*0.1)                     8,000                  4,000                  5,800 Beginning inventory                         (50000*0.1),(80000*0.1),(40000*0.1)                   34,000                  8,000                  4,000 Planned production units          (Sales units+Planned endingunits -Beginning units)                 24,000              76,000              41,800 Direct Material Purchases Budget for Jars Month Jan Feb Mar Production                     24,000                76,000                41,800 Ending Direct inventory                          (76000*0.2),(41800*0.2),(52200*0.2)(0*0.2)                   15,200                  8,360                10,440 Raw materials required          = (Planned Production Units+Ending direct material)                 39,200              84,360              52,240 Desired ending inventory                    (24000*0.2),(76000*0.2),(41800*0.2)(52200*0.2)                     4,800                15,200                  8,360 Jars purchased =(Raw materials required-Beginning Material)                   34,400                69,160                43,880 Direct Material Purchases Budget for peanut butter                                                                     39,200.00                   4,800              15,200                 8,360 Planned Production Units of jar                   34,400                69,160                43,880 Ounce in a jar required                          24                       24                       24 total ounce required                 825,600           1,659,840           1,053,120 Desired ending inventory                 331,968              210,624              200,448 Total needs         = (Planned Production Units+Ending direct material)           1,157,568         1,870,464         1,253,568 Beginning inventor                    165,120              331,968              210,624 Ounces purchasedto Purchases =(Raw materials required-Beginning Material)                 992,448           1,538,496           1,042,944

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