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Production Budget and Direct Materials Purchases Budgets Peanut Land Inc. produces all-natural organic peanut butter. The peanut butter is sold in 12-ounce jars. The sales budget for the first 4 months of the year is as follows:

Unit Sales Dollar Sales ($)
January 36,000 108,000
February 38,000 114,000
March 41,000 123,000
April 43,000 129,000

Company policy requires that ending inventories for each month be 25% of next month’s sales. At the beginning of January, the inventory of peanut butter is 9,300 jars.
Each jar of peanut butter needs two raw materials: 24 ounces of peanuts and one jar set (a glass jar and lid). Company policy requires that ending inventories of raw materials for each month be 10% of the next month’s production needs. That policy was met on January 1.

Prepare a direct materials purchase budget for jars for the month of January and February

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Answer:

See explanation section

Explanation:

                              Peanut Land Inc.

               Direct Materials Purchases Budgets

              For the month of January and February

                                             January                             February

Budgeted sales                    36,000                              38,000

+ ending inventory               9,500                                 10,250

Production available            45,500                              48,250

- beginning inventory           9,300                                 9,500    

Total production                   36,200                              38,750

Per unit material                 24 ounces                         24 ounces

Total raw mater                    868,800                          930,000

+ ending materials                 93,000                             99,600 (1)

Materials available                961,800                         1,029,600

- Beginning inventory            86,880                              93,000

Budgeted Direct materials   874,920                           936,600

Calculation:

(1) Ending materials inventory for February = [(March sales + Ending inventory - Beginning Inventory) × Per unit material] × 10% of the March Production

Therefore, Ending materials inventory for February = [(41,000 + 10,750 - 10,250) × 24 ounces] × 10%

Ending materials inventory for February = 99,600

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