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Direct Materials Budget

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Micro Products, Inc., has developed a very powerful electronic calculator. Each calculator requires three small "chips" that cost $2 each and are purchased from an overseas supplier. Micro Products has prepared a production budget for the calculator by quarters for Year 2 and for the first quarter of Year 3. as shown below:

YEAR 2 YEAR 3
First Second Third Fourth First

Budgeted Production 60,000 90,000 100,000 80,000
in Calculators

The chip used in production of the calculator is sometimes hard to get, so it is necessary to carry a large inventories as a precaution against stockouts. For this reason, the inventory of chips at the end of a quarter must be equal to 20% of the following quarter's production needs. Some 36,000 chips will be on hand to start the first quarter of Year 2.

Prepare a direct materials budget for chips, by quarter and in total, for Year 2. At the bottom of your budget, show the dollar amount of purchases foe each quarter and for the year in total.

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Solution provided by:
Gaurav Agarwal, MS
Education
  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
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