Problem: Grainger Manufacturing Inc. produces outdoor grills. On March 31, the company had 120 grills in inventory. The company's policy is to maintain a grill inventory equal to 15% of next month's sales. The company expects the following sales activity for the second quarter of the year:
April 800 units
May 2,000 units
June 2,600 units
Sales for July and August are expected to be 1,800 units and 1,400 units respectively. Each completed unit of finished product requires 3 pounds of a heat resistant plastic material which costs $4.00 per pound. The company has determined that it needs 20% of next month's raw material on hand at the end of each month. The company had 600 pounds of plastic on hand at the end of March.
1. Prepare a production budget for the second quarter of the year.
2. Prepare a budget for the second quarter of the year showing the projected cost of the direct materials (plastic) that will be needed.