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.

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

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.

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