Direct Materials Budgeting
Response to the following problem:
Shanahan Corporation produces three types of videocassettes: VHS, S-VHS, and 8 millimeter. Shanahan purchases tape for the videocassettes from a firm in Mexico and purchases the cases from another supplier in Brazil. The following materials are required for production:
VHS S-VHS 8MM
Taps $1.75 $2.30 $3.05
Cases 2.50 2.50 2.00
Beginning inventory for Shanahan Corporation is 5,000, 7,000, and 3,500 tapes for VHS, S-VHS, and 8 MM, respectively. Management wants to have 5,000 VHS and 8 MM tapes and 2,500 S-VHS tapes in ending inventory. Projected sales for the first half of 2009 are 40,000 VHS tapes, 14,000 S-VHS tapes, and 21,000 8 MM tapes.
Shanahan's policy is to pay 80% of its accounts with suppliers by the end of each half year. The balance in accounts payable on January 1, 2009, is $55,000.
1. Prepare a budget for direct materials purchases for the first half of 2009.
2. Prepare a budget for payments to direct materials suppliers for the first half of 2009.