Johnson industries manufactures a popular interactive stuffed animal for childre

Question

Johnson industries manufactures a popular interactive stuffed animal for children that requires two computer chips inside each toy. The company pays $3 for each computer chip. To help to guard against stock out of the computer chip. Johnson industries has a policy that states that the ending inventory of computer chips should be at least 30% of the following months production needs. The production for the first four months of the year is as follows Prepare a direct meterials budget for the first quarter that shows both the number of computer chips needed and the dollar amount of the purchases in the budget Prepare the direct materials budget by first calculating the total quartile needed, than complete the budget.

Explanation / Answer

Answer:

Direct Material Budget

Particulars Jan Feb Mar Quarter Units to be produced 5,000 4,800 4,600 14,400 Multiply by: Quantity of direct material required per unit 2 per unit 2 per unit 2 per unit 2 per unit Quantity needed for production 10,000 9,600 9,200 28,800 Plus: Desired ending inventory of direct material @ 30% of following months production 2,880 2,760 2,520 8,160 Total Quantity needed 12,880 12,360 11,720 36,960 Multiply by: Rate per unit $ 3 $ 3 $ 3 $ 3 Cost of Direct Material $ 38,640 $ 37,080 $ 35,160 $ 110,880

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