Garver Industries has budgeted the following unit sales: 2012: Month, Units Janu

Question

Garver Industries has budgeted the following unit sales: 2012: Month, Units January, 10,000 February, 8,000 March, 9,000 April, 11,000 May, 15,000 The finished goods units on hand on December 31, 2011, was 2,000 units. Each unit requires 2 pounds of raw materials that are estimated to cost an average of $4 per pound. It is the company's policy to maintain a finished goods inventory at the end of each month equal to 20% of next month's anticipated sales. They also have a policy of maintaining a raw materials inventory at the end of each month equal to 30% of the pounds needed for the following month's production. There were 5,760 pounds of raw materials on hand at December 31, 2011. Instructions For the first quarter of 2012, prepare (1) a production budget and (2) a direct materials budget.

Explanation / Answer

Total direct material purchase is $ 127,520, which is based on Quantity Raw Material Used of 39850 pounds x Cost per pound of $ 3.2. Total Quantity of Wax Used is 39,850 pounds, which is computed as follows: Formula: Beginning Inventory + Purchase = total Raw Material Available minus Used Material = ending inventory of raw material. 2000 pounds + Purchase = 41850 pounds minus 39450 pounds used = ending inventory 2400 pounds Computation of Raw Material Used is 39,450 pounds Budgeted production is 78900 candles x .5 pound of wax = 39,450 pounds 127520.00

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