Question

Pargo Company is preparing its master budget for 2022. Relevant data pertaining to its sales, production, and direct materials bu ce are as follows. Sales :Sales for the year are expected to total 1.000.000 units Quarterly sales are 20%, 25%, 25%, and 30%, respectively. The sales price is expected to be $40 per unit for the first three quarters and $45 per unit beginning in the fourth quarter. Sales in the first quarter of 2023 are expected to be 20% higher than the budgeted sales for the first quarter of 2022 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 $12 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 2023 are 450,000 pounds. PARGO COMPANY Direct Materials Budget Quarter 1 2 V

Answer 1

Here the direct materials budget for Pargo Company that includes information about the quantity and cost of raw materials required for production:

Pargo Company Direct Materials Budget:

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Quarter 1:

Raw Materials Required: 400,000 pounds

Cost of Raw Materials: $4,800,000

Quarter 2:

Raw Materials Required: 495,000 pounds

Cost of Raw Materials: $5,940,000

Step-by-step explanation:

To prepare the Direct Materials Budget for Pargo Company for Quarter 1 and Quarter 2, we need to calculate the raw materials requirements and the cost of those materials.

1. Calculate the raw materials requirements for Quarter 1:

• Each unit requires 2 pounds of raw materials.
• Quarter 1 sales volume is given as 20% of the annual sales, which is 1,000,000 units.
• Raw materials required for Quarter 1 = 2 pounds/unit * 1,000,000 units * 0.2 = 400,000 pounds

2. Calculate the raw materials requirements for Quarter 2:

• Management desires to maintain raw materials inventories at 10% of the next quarter's production requirements.
• Quarter 2 production requirements are given as 450,000 pounds.
• Raw materials required for Quarter 2 = 450,000 pounds + (10% * 450,000 pounds) = 495,000 pounds

3. Calculate the cost of raw materials for Quarter 1:

• Each pound of raw materials costs $12.
• Cost of raw materials for Quarter 1 = 400,000 pounds * $12/pound = $4,800,000

4. Calculate the cost of raw materials for Quarter 2:

• Cost of raw materials for Quarter 2 = 495,000 pounds * $12/pound = $5,940,000

In the Direct Materials Budget, we calculate the raw materials requirements for each quarter based on sales and production data. We also calculate the cost of the raw materials based on the quantity required and the cost per unit.