Marigold Company's sales budget projects unit sales of part 198Z of 10,300 units in January, 12,000 units in February, and 13,500 units in March. Each unit of part 198Z requires 4 pounds of materials, which cost $4 per pound. Marigold Company desires its ending raw materials inventory to equal 40% of the next month's production requirements, and its ending finished goods inventory to equal 20% of the next month's expected unit sales. These goals were met on December 31, 2016.

a. Prepare a projected budget for Jan and Feb 2017

b. Prepare a direct material budget for Jan 2017

Production Budget Jan 10,640 Feb 12,300

Direct Materials Budget Jan 45216

Explanation:

Production Budget = Sales + Desired Ending Inventory - Opening Inventory

The ending inventory for one month is the opening inventory for the next. We calculate the ending inventory for

Jan = 20% 0f 12000 units = 2400

Feb = 20% of 13500 units = 2700

Marigold Company

Production Budget

Jan Feb March

Sales Units 10,300 12000 13500

Add Desired

Ending Inventory 2400 2700

Less Opening 2060 2400 2700

Production Budget 10,640 12,300

Direct Materials Budget = Production Budget in pounds + Direct Materials Desired Ending Inventory - Opening Inventory Direct Materials

The ending inventory for one month is the opening inventory for the next. We calculate the ending inventory for

Jan = 40% 0f 49,200 units = 19680

Dec = 40% 0f 42,560 units = 17024

Dec Ending Inv = Jan opening Inventory

Marigold Company

Direct Materials Budget

Jan Feb

Production Units 10,640 12300

Pounds per unit 4 4

Production pounds 42,560 49,200

Add Desired

Ending Inventory 19,680

Less Opening 17024 19680

Direct Materials Budget 45216