Question

Patrick Inc. makes industrial solvents sold in 5-gallon drums. Planned production in units for first 3 months of the coming year is:
January 43,800
February 41,000
March 50,250
Each drum that requires 5.5 gallons of chemicals and one plastic drum. Company policy requires ending inventories of raw materials for each month be 15% of the next month's production needs. That policy was met for the ending inventory of December in the prior year. The cost of one gallon of chemicals is $2.00. The cost of one drum is $1.60.
Required:
1. Calculate the ending inventory of chemicals in gallons for December of the prior year and for January and February. What is the beginning inventory of chemicals for January?
2. Prepare a direct materials purchases budget for chemicals for the months of January and February.
3. Calculate the ending inventory of drums for December of the prior year and for January and February.
4. Prepare a direct materials purchases budget for drums for the months of January and and February.

Answer 1

Answer:

1) 36,135 gallons

2) direct materials budget - chemicals

                                                 January         February          March

units to be produced              43,800          41,000              50,250

direct materials per unit             5.5                  5.5                    5.5    

total direct materials               240,900        225,500          276,375

+ ending inventory                    33,825            41,456                 -

- beginning inventory               -36,135          -33,825            -41,457  

direct materials purchase      238,590           233,131                 -

cost per unit                                $2                   $2                     $2    

cost of direct materials          $477,180        $466,262               -

3) ending inventory for December 6,570 drums

ending inventory for January 6,150 drums

ending inventory for February 7,538 drums

4) direct materials budget - drums

                                                 January         February          March

units to be produced              43,800          41,000              50,250

direct materials per unit               1                    1                         1        

total direct materials               43,800          41,000              50,250

+ ending inventory                     6,150            7,538                    -

- beginning inventory               -6,570           -6,150               -7,538  

direct materials purchase       43,380         42,388                    -

cost per unit                               $1.60            $1.60                   $1.60  

cost of direct materials         $69,408      $67,820.80               -

Explanation:

planned production:

January 43,800

February 41,000

March 50,250

each drum requires 5.5 gallons of chemicals and 1 plastic drum