Johnson Industries manufactures a popular interactive stuffed animal for children that requires four computer chips inside each toy. The company pays $ 3 for each computer chip. To help to guard against stockouts of the computer chip, Johnson Industries has a policy that states that the ending inventory of computer chips should be at least 25% of the following month's production needs. The production schedule for the first four months of the year is as follows: Stuffed animals to be produced
January 6,000
February 4,600
March 4,600
April 4,200
Requirement:
1. Prepare a direct meterials budget for the first quarter that shows both the number of computer chips needed and the dollar amount of the purchases in the budget.
2. Prepare the direct materials budget by first calculating the total quartile needed, than complete the budget.

                                                                  January         February         March

Budgeted Materials Purchase (units)        28,600           18,400            18,000

Budgeted Materials Purchase                 $85,800        $55,200        $54,000

Explanation:

Direct materials budget for the first quarter

                                                         January         February         March

Budgeted Production                        6,000            4,600            4,600

Budgeted Material                           24,000           18,400           18,400

Add Budgeted Closing Inventory     4,600            4,600             4,200

Materials Needed                            28,600          23,000           22,600

Less Budgeted Opening Inventory     0                (4,600)           (4,600)

Budgeted Materials Purchase        28,600           18,400            18,000

Cost of computer chip                         $3                   $3                   $3

Budgeted Materials Purchase       $85,800        $55,200        $54,000

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