Question

Pargo Company is preparing its master budget for 2020. Relevant data pertaining to its sales, production, and direct materials budgets are as follows. Sales. Sales for the year are expected to total 1,900,000 units. Quarterly sales are 22%, 27%, 25%, and 26%, respectively. The sales price is expected to be $40 per unit for the first three quarters and $45 per unit beginning in the fourth quarter. Sales in the first quarter of 2021 are expected to be 10% higher than the budgeted sales for the first quarter of 2020.
Production Management desires to maintain the ending finished goods inventories at 25% of the next quarter's budgeted sales volume. Direct materials. Each unit requires 2 pounds of raw materials at a cost of $11 per pound. Management desires to maintain raw materials inventories at 10% of the next quarter's production requirements. Assume the production requirements for first quarter of 2021 are 495,000 pounds me Prepare the sales, production, and direct materials budgets by quarters for 2020

Answer 1

Answer:

Pargo Company

1. Sales Budget

Quarterly sales           1st             2nd             3rd             4th             2021

Sales                          22%           27%            25%            26%

Sales in quantity    418,000      513,000     475,000      494,000    459,800

Sales price               $40             $40           $40              $45             $45

Sales value ('000) $16,720     $20,520      $19,000     $22,2300   $20,691

2. Production Budget

Quarterly production   1st             2nd             3rd             4th          2021

Sales in quantity    418,000      513,000     475,000      494,000    459,800

Ending inventory   128,250       118,750      123,500       114,950

Beginning inventory 0             128,250        118,750      123,500

Total Production  546,250     503,500      479,750     485,450

3. Direct Materials Budget

Quarterly production                    1st             2nd              3rd             4th

Total Production (units)         546,250      503,500       479,750    485,450

Materials per unit (pounds)1,092,500    1,007,000      959,500    970,900

Ending Inventory                    100,700        95,950         97,090      49,500

Beginning Inventory              109,250       100,700         95,950      97,090

Purchases                           1,083,950    1,002,250      960,640     923,310

Cost of purchases          $11,923,450 $11,024,750 $10,567,040$10,156,410

Explanation:

a) Data and Calculations:

Expected sales = 1,900,000

Quarterly sales           1st             2nd             3rd             4th             2021

Sales                          22%           27%            25%            26%

Sales in quantity    418,000      513,000     475,000      494,000    459,800

Sales price               $40             $40           $40              $45             $45

Sales value ('000) $16,720     $20,520      $19,000     $22,2300   $20,691

Ending inventory  128,250     118,750         123,500        114,950    units