Pargo Company is preparing its master budget for 2017. Relevant data pertaining
ID: 2573929 • 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 21%, 25%, 27%, and 27%, respectively. The sales price is expected to be $38 per unit for the first three quarters and $45 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 499,000 pounds. Prepare the sales, production, and direct materials budgets by quarters for 2017.
Explanation / Answer
Pargo company Sales budget For the year ending december 31,2017 Qtr-1 Qtr-2 Qtr-3 Qtr-4 Total Expected unit sales 210000 250000 270000 270000 1000000 Unit selling price 38 38 38 45 Total sales 7980000 9500000 10260000 12150000 39890000 Pargo company Production budget For the year ending december 31,2017 Qtr-1 Qtr-2 Qtr-3 Qtr-4 Total Expected unit sales 210000 250000 270000 270000 1000000 Add : desired ending finished goods units 50000 54000 54000 46200 204200 Total required units 260000 304000 324000 316200 1204200 Less : beginning finished goods units 42000 50000 54000 54000 200000 Required production units 218000 254000 270000 262200 1004200 *Expected sales units= 20% of next quarter's unit sales *Estimated first quarter 2018 sales units : 210000+(210000*10%) =231,000 : 231000*20% *Beginning inventory for first quarter = 20% of estimated first qurter's sale = 210000*20%= 42000 Pargo company Direct material budget For the year ending december 31,2017 Qtr-1 Qtr-2 Qtr-3 Qtr-4 Year Required production units 218000 254000 270000 262200 Direct material per unit 2 2 2 2 Total pounds needed for production 436000 508000 540000 524400 Add : Desired ending direct materials 50800 54000 52440 49900 Total materials required 486800 562000 592440 574300 Less : beginning direct material 43600 50800 54000 52440 Direct material purchases 443200 511200 538440 521860 Cost per pound 11 11 11 11 Total cost of direct material purchases 4875200 5623200 5922840 5740460 22161700 * desired ending direct material for qtr 4 = 499000*10% =49900 * beginning direct material for qtr-1 = 436000*10% =43600