Pargo Company is preparing its master budget for 2017. Relevant data pertaining

Question

Pargo Company is preparing its master budget for 2017. Relevant data pertaining to its sales, production, and direct materials budgets are as follows.

Sales. Sales for the year are expected to total 2,000,000 units. Quarterly sales are 22%, 26%, 27%, and 25%, respectively. The sales price is expected to be $40 per unit for the first three quarters and $47 per unit beginning in the fourth quarter. Sales in the first quarter of 2018 are expected to be 15% higher than the budgeted sales for the first quarter of 2017.

Production. Management desires to maintain the ending finished goods inventories at 25% of the next quarter’s budgeted sales volume.

Direct materials. Each unit requires 2 pounds of raw materials at a cost of $11 per pound. Management desires to maintain raw materials inventories at 10% of the next quarter’s production requirements. Assume the production requirements for first quarter of 2018 are 498,000 pounds.

Prepare the sales, production, and direct materials budgets by quarters for 2017.

Explanation / Answer

SALES BUDGET Q-1 Q-2 Q-3 Q-4 TOTAL Budgeted Sales units 440,000 520,000 540,000 500,000 2,000,000 Selling price per unit 40 40 40 47 Total Sales 17,600,000 20,800,000 21,600,000 23,500,000 83,500,000 PRODUCTION BUDGET Q-1 Q-2 Q-3 Q-4 YEAR Q-1 Budgeted Sales Units 440,000 520,000 540,000 500,000 2,000,000 506,000 Add: Desired Ending Finished inventory 130,000 135,000 125,000 126,500 126,500 Total Needs 570,000 655,000 665,000 626,500 2,126,500 Less: Beginning Finished Inventory 110,000 130,000 135,000 125,000 110,000 Required Production in units 460,000 525,000 530,000 501,500 2,016,500 RAW MATERIAL PURCHASE BUDGET Q-1 Q-2 Q-3 Q-4 YEAR Budgeted Production units 460,000 525,000 530,000 501,500 2,016,500 Raw material required per unit 2 2 2 2 2 Total production needs 920,000 1,050,000 1,060,000 103,000 4,033,000 Add: Desired Ending Inventory 105,000 106,000 103,000 49,800 49,800 Total needs 1,025,000 1,156,000 1,163,000 152,800 4,082,800 Less: Beginning Inventory 92,000 105,000 106,000 103,000 92,000 Purchase Units 933,000 1,051,000 1,057,000 49,800 3,990,800 Cost price per unit 11.00 11.00 1.00 4.00 4.00 Budgeted Purchase in $ 10,263,000 11,561,000 1,057,000 199,200 15,963,200

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