Peanut Land Inc. produces all-natural organic peanut butter. The peanut butter i

Question

Peanut Land 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: Unit Sales Dollar Sales ($) January 70,000 147,000 February 65,000 136,500 March 60,000 126,000 April 62,000 130,200 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 31,000 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. Prepare a direct materials purchases budget for peanuts for the months of January and February.

Explanation / Answer

Statement Showing Production Budget Jan Feb Mar Q-1 Total Sales                70,000                65,000                  60,000              195,000 Desired Ending inventory (10% of Next Month Sale)                  6,500                  6,000                    6,200                  6,200 Total Unit Needed                76,500                71,000                  66,200              201,200 Less: Beg. Inventory                  7,000                  6,500                    6,000                  7,000 Production required (No of Jar)                69,500                64,500                  60,200              194,200 Statement Showing Raw material Purchase Budget- Peanut Butter Jan Feb Mar Apr Production Unit (in Jar)                69,500                64,500                  60,200              194,200 RM Required per Jar : 24 Ounce          1,668,000          1,548,000            1,444,800          4,660,800 Desired Ending Inventory( 20% of Next Month)              309,600              288,960               267,840              267,840 Total Raw material Required ( in Ounce)          1,977,600          1,836,960            1,712,640          4,928,640 Less: Opening Inventory              333,600              309,600               288,960              333,600 Purchase Quantity Required ( in Ounce)          1,644,000          1,527,360            1,423,680          4,595,040 Statement Showing Raw material Purchase Budget- for Jar Jan Feb Mar Total Production Unit (in Jar)                69,500                64,500                  60,200              194,200 RM Required per Jar : 1 Jar                69,500                64,500                  60,200              194,200 Desired Ending Inventory( 20% of Next Month)                12,900                12,040                  11,160                11,160 Total Raw material Required ( No. of Jar)                82,400                76,540                  71,360              205,360 Less: Opening Inventory                31,000                12,900                  12,040                31,000 Purchase Quantity Required ( No. of Jar)                51,400                63,640                  59,320              174,360

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