Problem:
Campbell Manufacturing intends to start business on January 1, 2011. Production plans for the first four months of operations are as follows:
January .............20,000 units
February ............50,000 units
March ...............70,000 units
April ..................70,000 units
Each unit requires 2 pounds of material. The firm would like to end each month with enough raw material to cover 25 percent of the following month's production needs. Raw material costs $7 per pound. Management pays for 40 percent of purchases in the month of purchase and receives a 10 percent discount for these payments. The remaining purchases are paid in the following month, with no discount available.
a. Prepare a purchases budget for the first quarter of 2011 in units, in total, and in dollars.
b. Determine the budgeted payments for purchases of raw materials for each of the first three months of operations and for the quarter in total.
c. Where in the budgeted financial statements do the purchase discounts appear?