White corporation’s budget calls for the following sales for next year: quarter 1 95,000 units quarter 3 67,000 units quarter 2 81,000 units quarter 4 98,000 units each unit of the product requires 5 pounds of direct materials. the company’s policy is to begin each quarter with an inventory of product equal to 5% of that quarter’s estimated sales requirements and an inventory of direct materials equal to 20% of that quarter’s estimated direct materials requirements for production. required: 1. determine the production budget for the second quarter. 2. determine the materials purchases budget for the second quarter.

& Explanation:

Production Budget q2

-Q2

sales67,000

ending policy4,050 (5% of Q3)

Beginning3,350 (5% of current quarter)

Production67,700 (sales + ending - beginning)

Raw materials Budget q2

Production Needs 338,500 (Units x 5)

ending policy81,850 (20% of production q3)

Beginning67,700 (20% of q2 production needs)

Purchase352,650 (needs + desired ending - beginning)

1. The production budget for the second quarter is 41,130.

2. The materials purchases budget for the second quarter is 233,850.

1. Production budget for the second quarter.

WHITE CORPORATION  Production Budget  for 2nd Quarter

Budgeted sales  81,000

Desired ending inventory 3,350

( 67,000×5%)

Total units needed84,350

(81,000+3,350)

Beginning inventory (4,050)

(81,000×5%)

Total units to produce80,300

(84,350-4,050)

2. Materials purchases budget for the second quarter.

First step is to calculate the Desired ending inventory of direct materials (Ibs):

Budgeted sales  67,000

Desired ending inventory 4,900

( 98,000×5%)

Total units needed71,900

(67,000+4,900)

Beginning inventory  (3,350)

(67,000×5%)

Total units to produce68,550

(71,900-3,350)

Direct materials (Ibs) per unit produced3

Direct material needed in production205,650

(68,550×3)

Desired ending inventory of direct materials (Ibs) for 2nd Quarter 41,130

(205,650×20%)  

Second step is to calculate the materials purchases budget for the second quarter

WHITE CORPORATION  Budgeted Purchases of Direct Materials (In Ibs) 2nd Quarter

Budgeted production80,300

Direct materials (Ibs) per unit produced3

Direct material needed in production240,900

(80,300×3)

Desired ending inventory of direct materials (Ibs) 41,130

Total direct material needed282,030

(240,900+41,130)

Beginning inventory of direct materials (48,180)

(240,900×20%)

Budgeted purchases of direct materials (Ibs)233,850

(282,030-48,180)

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