Problem - Preparing a Direct Materials Purchases Budget
Patrick Inc. makes industrial solvents sold in five-gallon drums. Planned production in units for the first three months of the coming year is:
January 43,800
February 41,000
March 50,250
Each drum requires 5.5 gallons of chemicals and one plastic drum. Company policy requires that ending inventories of raw materials for each month be 15% of the next month's production needs. That policy was met for the ending inventory of December in the prior year. The cost of one gallon of chemicals is $2.00. The cost of one drum is $1.60.
Required:
1. Calculate the ending inventory of chemicals in gallons for December of the prior year, and for January and February. What is the beginning inventory of chemicals for January? Round your answers to the nearest whole gallon.
2. Prepare a direct materials purchases budget for chemicals for the months of January and February. Do not include a multiplication symbol as part of your answer.
3. Calculate the ending inventory of drums for December of the prior year, and for January and February. Round your answers to the nearest whole unit.
4. Prepare a direct materials purchases budget for drums for the months of January and February. Do not include a multiplication symbol as part of your answer.