Question

On January 1, 2020, the Sheridan Company budget committee has reached agreement on the following data for the 6 months ending June 30, 2020. Sales units: First quarter 5,200; second quarter 6,000; third quarter 7,000. Ending raw materials inventory: 40% of the next quarter’s production requirements. Ending finished goods inventory: 25% of the next quarter’s expected sales units. Third-quarter production: 7,630 units. The ending raw materials and finished goods inventories at December 31, 2019, follow the same percentage relationships to production and sales that occur in 2020. 3 pounds of raw materials are required to make each unit of finished goods. Raw materials purchased are expected to cost $4 per pound. Prepare a production budget by quarters for the 6-month period ended June 30, 2020. SHERIDAN COMPANY Production Budget Quarter 1 2 Six Months : : Prepare a direct materials budget by quarters for the 6-month period ended June 30, 2020. SHERIDAN COMPANY Direct Materials Budget Quarter 1 2 Six Months : : $ $ $ $ $

Answer 1

Answer and Explanation:

The preparation of the production budget and direct material budget is presented below:

As per the data given in the question,

                                                Sheridan company

                                               Production Budget

                               For six months ending June 30,2020

                                                                         Quarter

                                      1                   2                        six months

Expected units sales 5,200 6,700

Add: units of desired ending finished goods 1,675 1,750

Total units 6,875 8,450

Less: Finished good units 1,300 1,675

Required units for production   5,575         6,775             12,350

Quarter 2 required finished goods = 25% × Unit sales of quarter 3

= 25% × 7,000

= 1,750

                                               Sheridan company

                                         Direct material Budget

                                 For six months ending June 30,2020

                                              Quarter                                             Quarter

                                         1                   2       Six months                      3

Units to be produced 5,575           6,775                                           7,630

Direct material per unit 3                   3                                                   3

Total need for production 16,725 20,325                                        22,890

Add: Required ending direct material 8,130 8,856

                                     (20,325 × 40%)   (22,890 × 40%)

Total material required 24,855 29,181

Less: Beginning direct material 6,690 8,130

                                (16,725 × 40%)

Direct material purchased 18,165 21,051

Cost per pound 4.00 4.00

Total cost                   $72,660         $84,204    $156,864