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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Preparing a Direct Materials Purchases Budget

Patrick Inc. makes industrial solvents sold in 5-gallon drums. Planned production in units for the first 3 months of the coming year is:

Chapter 9, Problem 23BEA, Preparing a Direct Materials Purchases Budget Patrick Inc. makes industrial solvents sold in

Each drum requires 5.5 gallons of chemicals and one plastic drum. Company policy requires that 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. (Note: Round all unit amounts to the nearest unit. Round all dollar amounts to the nearest dollar.)

Required:

  1. 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. 2. Prepare a direct materials purchases budget for chemicals for the months of January and February.
  3. 3. Calculate the ending inventory of drums for December of the prior year and for January and February.
  4. 4. Prepare a direct materials purchases budget for drums for the months of January and February.

1.

To determine

Compute closing inventory for the month of December, January, and February.

Explanation

Direct Material Purchases Budget:

Direct material purchases budget is a part of operating budget. Direct material purchases budget is prepared by adding materials required at the end and subtracting material available in the beginning, to the material required for production within the period.

Computation of ending inventory for the month of December, January, and February:

ParticularsDecemberJanuaryFebruaryMarch
Expected units of production 43,80041,00050,250
Material required for production (Expectedunits×5

2.

To determine

Present material purchase budget for solvent for the month of January and February.

3.

To determine

Compute closing inventory of drum for the month of December, January, and February.

4.

To determine

Present material purchase budget for drums for the month of January and February.

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