Ortiz Company\'s sales budget projects unit sales of part 198z of 10300 units in

Question

Ortiz Company's sales budget projects unit sales of part 198z of 10300 units in Jaunary 11, 600 units in February ,and 13200 units in March. Each unit of part 198z requires 2 pounds of materials, which cost $3 per pound. Ortiz company desires its ending raw materials inventory to equal 30% of the next month's production requirements, and its ending finished goods inventory to equal 30% of the next month's expected sales. These goals were met at Dec 31, 2010.

A:
Prepare a production budget for Jan & Feb 2011. (Prepare all amounts as positive amounts & substract where necessary.)

B:
Prepare a direct materials budget for Jan 2011. (Enter all amounts as positive amounts and substract where necessary.)

Explanation / Answer

a)

ORTIZ COMPANY
Production Budget
For the Two Months Ending February 28, 2011
January February
Expected Unit Sales 10,500 12,200
Add: Desired Ending Finished Goods Inventory 3,660    3,780
Total Required Units 14,160 15,980
Less: Beginning Finished Goods Inventory 3,150 3,660
Required Production Units 11,010    12,320


b)
ORTIZ COMPANY
Direct Materials Budget
For the Month Ending January 31, 2011
January
Units to Be Produced 11,010
Direct Materials Pounds per Unit 4
Total Pounds needed for Production 44,040
Add: Desired Pounds in Ending Direct Materials Inventory 7,392
Total Materials Required 51,432
Less: Beginning Direct Materials (Pounds) 6,606
Direct Materials Purchases 44,826
Cost per Pound $3
Total Cost of Direct Materials Purchases $134,478

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