Pargo Company is preparing its master budget for 2017. Relevant data pertaining
ID: 2475918 • Letter: P
Question
Pargo Company is preparing its master budget for 2017. 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 19%, 26%, 27%, and 28%, respectively. The sales price is expected to be $41 per unit for the first three quarters and $46 per unit beginning in the fourth quarter. Sales in the first quarter of 2018 are expected to be 10% higher than the budgeted sales for the first quarter of 2017.
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 $11 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 2018 are 501,000 pounds.
Prepare the sales, production, and direct materials budgets by quarters for 2017.
PLEASE CHECK MY WORK--FILLED IN AS MUCH AS POSSIBLE!
Explanation / Answer
Ending inventory at 4th quarter should be calculated as 20% of expected sale in quarter 1 of 2018
it is given quarter 1 sale for 2018 will be 10 % higher then as it was in 1st quarter of 2017
i.e. 190000 + 10% of 190000 , = 190000+19000, =209000
and 20 % will be = 209000 x 20% , = 41800
So production for quarter 4 should be
Unit to besold = 280000
Add: Closing inventory = 41800
Material to be required = 321800
Less: Opening inventory = 56000
Units to be produced = 265800
Rest your production budget is accurate
Now in purchase budget you should commence with production requirements of quarter
You have taken sale units as beginning which is incorrect for 2,3,4th quarter