Question

Production Budget and Direct Materials Purchases Budgets Peanut Land Inc. produces all-natural organic peanut butter. The peanut butter is sold in 12-ounce jars. The sales budget for the first 4 months of the year is as follows:

Unit Sales Dollar Sales ($)
January 36,000 108,000
February 38,000 114,000
March 41,000 123,000
April 43,000 129,000

Company policy requires that ending inventories for each month be 25% of next month’s sales. At the beginning of January, the inventory of peanut butter is 9,300 jars.
Each jar of peanut butter needs two raw materials: 24 ounces of peanuts and one jar set (a glass jar and lid). Company policy requires that ending inventories of raw materials for each month be 10% of the next month’s production needs. That policy was met on January 1.

Prepare a direct materials purchase budget for jars for the month of January and February

Answer 1

See explanation section

Step-by-step explanation:

Peanut Land Inc.

Direct Materials Purchases Budgets

For the month of January and February

January February

Budgeted sales 36,000 38,000

+ ending inventory 9,500 10,250

Production available 45,500 48,250

- beginning inventory 9,300 9,500

Total production 36,200 38,750

Per unit material 24 ounces 24 ounces

Total raw mater 868,800 930,000

+ ending materials 93,000 99,600 (1)

Materials available 961,800 1,029,600

- Beginning inventory 86,880 93,000

Budgeted Direct materials 874,920 936,600

Calculation:

(1) Ending materials inventory for February = [(March sales + Ending inventory - Beginning Inventory) × Per unit material] × 10% of the March Production

Therefore, Ending materials inventory for February = [(41,000 + 10,750 - 10,250) × 24 ounces] × 10%

Ending materials inventory for February = 99,600