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20 March, 20:29

The production department of Priston Company has submitted the following forecast of units to be produced by quarter for the upcoming fiscal year.

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Units to be produced 6,000 7,000 8,000 5,000

In addition, the beginning raw materials inventory for the 1st Quarter is budgeted to be 3,600 pounds and the beginning accounts payable for the 1st Quarter is budgeted to be $11,775.

Each unit requires three pounds of raw material that costs $2.50 per pound. Management desires to end each quarter with a raw materials inventory equal to 20% of the following quarter

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  1. 20 March, 23:48
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    Instructions are listed below.

    Explanation:

    Giving the following information:

    1st Quarter - 2nd Quarter - 3rd Quarter - 4th Quarter

    Units to be produced: 6,000 - 7,000 - 8,000 - 5,000

    the beginning raw materials inventory = 3,600

    Each unit requires three pounds of raw material that costs $2.50 per pound. Management desires to end each quarter with a raw materials inventory equal to 20% of the following quarter

    I will assume that the requirements are the cost of direct material for each quarter.

    The direct material budget is calculated by the following formula:

    Direct material budget = direct material for production + ending inventory - beginning inventory

    Q1:

    Production = (6,000*3) * $2.5 = $45,000

    Ending inventory = [ (7,000*3) * $2.5]*0.20 = $10,500

    Beginning inventory = (3,600*2.5) = (9,000)

    Total = $46,500

    Q2:

    Production = (7,000*3) * $2.5 = $52,500

    Ending inventory = [ (8,000*3) * $2.5]*0.20 = $12,000

    Beginning inventory = (10,500)

    Total = $54,000

    Q3:

    Production = (8,000*3) * $2.5 = $60,000

    Ending inventory = [ (5,000*3) * $2.5]*0.20 = $7,500

    Beginning inventory = (12,000)

    Total = $55,500
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