E9-21A Direct materials budget (Learning Objective 2) Sacco Industries manufactu

Question

E9-21A Direct materials budget (Learning Objective 2) Sacco Industries manufactures a popular interactive stuffed animal for children that re- quires three computer chips inside each toy. The company pays $2 for each computer chip. To help to guard against stockouts of the computer chip, Sacco Industries has a policy stating that the ending inventory of computer chips should be at least 25% of the following month's production needs. The production schedule for the first four months of January February March April Stuffed animals to be produced 5,600 4,800 4,200 4,000 Requirement Prepare a direct materials budget for the first quarter that shows both the number of computer chips needed and the dollar amount of the purchases in the budget.

Explanation / Answer

Direct material budget :

January February March First quarter Production units 5600 4800 4200 14600 Material per unit 3 3 3 3 Direct material needed for production 16800 14400 12600 43800 Add: Desired ending inventory 3600 3150 3000 3000 Total needs 20400 17550 15600 46800 Less: Beginning inventory (4200) (3600) (3150) (4200) Direct material purchase 16200 13950 12450 42600 Rate per chip 2 2 2 2 Direct material purchase 32400 27900 24900 85200

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