On January 1, 2017, the Hardin Company budget committee has reached agreement on
ID: 2446404 • Letter: O
Question
On January 1, 2017, the Hardin Company budget committee has reached agreement on the following data for the 6 months ending June 30, 2017.
Sales units: First quarter 5,800; second quarter 6,600; third quarter 7,600
Ending raw materials inventory: 40% of the next quarter’s production requirements
Ending finished goods inventory: 25% of the next quarter’s expected sales units
Third-quarter production: 7,780 units.
The ending raw materials and finished goods inventories at December 31, 2016, follow the same percentage relationships to production and sales that occur in 2017. 4 pounds of raw materials are required to make each unit of finished goods. Raw materials purchased are expected to cost $4 per pound.
A.) Prepare a production budget by quarters for the 6-month period ended June 30, 2017.
B.) Prepare a direct materials budget by quarters for the 6-month period ended June 30, 2017.
Explanation / Answer
Production Budget Particulars 1st Quarter 2nd Quarter Total Sales (in units) 5,800 6,600 12,400 Add: Desired Ending Inventory 1,650 1,900 1,900 Total Required Units 7,450 8,500 14,300 Less: Beginning Inventory 1,450 1,650 1,450 Total Finished Goods to be produced 6,000 6,850 12,850 Direct Material Purchase Budget Particulars 1st Quarter 2nd Quarter Total Total Finished Goods to be produced 6,000 6,850 12,850 Raw Material required per unit (in pounds) 4 4 4 Total Raw Materials required for production 24,000 27,400 51,400 Add: Desired Ending Raw material Inventory (pounds) 10,960 12,448 12,448 Total Materials Required 34,960 39,848 63,848 Less: Beginning Raw Material Inventory (pounds) 9,600 10,960 9,600 Direct Material Purchase in the quarter 25,360 28,888 54,248 Cost per pound $4 $4 $4 Total cost of direct materials purchase (in $) $101,440 $115,552 $216,992