Question

Patrick Inc. makes industrial solvents sold in 5-gallon drums. Planned production in units for first 3 months of the coming year is:

January 43,800
February 41,000
March 50,250
Each drum that requires 5.5 gallons of chemicals and one plastic drum. Company policy requires ending inventories of raw materials for each month be 15% of the next month's production needs. That policy was met for the ending inventory of December in the prior year. The cost of one gallon of chemicals is $2.00. The cost of one drum is $1.60.
Required:
1. Calculate the ending inventory of chemicals in gallons for December of the prior year and for January and February. What is the beginning inventory of chemicals for January?
2. Prepare a direct materials purchases budget for chemicals for the months of January and February.
3. Calculate the ending inventory of drums for December of the prior year and for January and February.
4. Prepare a direct materials purchases budget for drums for the months of January and and February.

Answer 1

1) 36,135 gallons

2) direct materials budget - chemicals

January February March

units to be produced 43,800 41,000 50,250

direct materials per unit 5.5 5.5 5.5

total direct materials 240,900 225,500 276,375

+ ending inventory 33,825 41,456 -

- beginning inventory -36,135 -33,825 -41,457

direct materials purchase 238,590 233,131 -

cost per unit $2 $2 $2

cost of direct materials $477,180 $466,262 -

3) ending inventory for December 6,570 drums

ending inventory for January 6,150 drums

ending inventory for February 7,538 drums

4) direct materials budget - drums

January February March

units to be produced 43,800 41,000 50,250

direct materials per unit 1 1 1

total direct materials 43,800 41,000 50,250

+ ending inventory 6,150 7,538 -

- beginning inventory -6,570 -6,150 -7,538

direct materials purchase 43,380 42,388 -

cost per unit $1.60 $1.60 $1.60

cost of direct materials $69,408 $67,820.80 -

Step-by-step explanation:

planned production:

January 43,800

February 41,000

March 50,250

each drum requires 5.5 gallons of chemicals and 1 plastic drum