Question

Pargo Company is preparing its master budget for 2020. Relevant data pertaining to its sales, production, and direct materials budgets are as follows. Sales. Sales for the year are expected to total 1,000,000 units. Quarterly sales are 18%, 23%, 23%, and 36%, respectively. The sales price is expected to be $38 per unit for the first three quarters and $43 per unit beginning in the fourth quarter. Sales in the first quarter of 2021 are expected to be 10% higher than the budgeted sales for the first quarter of 2020. Production. Management desires to maintain the ending finished goods inventories at 20% of the next quarter’s budgeted sales volume. Direct materials. Each unit requires 2 pounds of raw materials at a cost of $10 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 2021 are 490,000 pounds. Prepare the sales, production, and direct materials budgets by quarters for 2020.

Answer 1

Sales Budget = 6840,000 + 8740,000 + 8740,000 + 15480,00 = $ 39800,000

Production Budget, = 490,000+ 230,000 + 256,000 +327,600= 1303600

Purchases Cost Budget = $ 475,0000 + 462, 6000 + 519,1000 + 649,5000 = $2106,2000

Step-by-step explanation:

Pargo Company

Sales Budget

For the year 2020

QUARTERS

1 2 3 4 TOTAL

18%, 23%, 23%, 36%,

Sales, 180,000 230,000 230,000 360,000

Sale Price $38 $ 38 $ 38 $ 43

Sales Budget 6840,000 8740,000 8740,000 15480,00 $ 39800,000

Pargo Company

Production Budget

For the year 2020

QUARTERS

1 2 3 4 TOTAL

Sales 180,000 230,000 230,000 360,000

+Ending Inventory 46,000 46000 72000 39,600*

-Opening Inventory 264,000* 46000 46000 72000

Production, 490,000 230,000 256,000 327,600 1303600

Working:

The opening inventory is calculated as the production ius already given. 264,000

Sales of 1st quarter 2020 = 180,000

Sales of 1st quarter 2021 = 180,000 + 18,000= 198,000

Ending inventory of 4th quarter of 2020 = 198,000* 20%= 39,600

Pargo Company

Direct Materials Budget

For the year 2020

QUARTERS

1 2 3 4

Units Produced 490,000 230,000 256,000 327,600

Direct materials

Per Unit 2 pounds 2 pounds 2 pounds 2 Pounds

D. Mat Used 980,000 460,000 512,000 655,200

Add Desired

Ending Inv 23,000 25,600 32,700 27,000

Less Beginning

Inventory 528,000* 23,000 25,600 32,700

D. Materials

Purchases 475,000 462, 600 519,100 649,500

Cost per pounds $ 10 $ 10 $ 10 $ 10

Purchases Cost $ 475,0000 462, 6000 519,1000 649,5000 TOTAL $2106,2000

The beginning inventory is calculated from the production budget opening inventory.