Johnson Company’s sales budget projects unit sales of part A55Z of 14,200 units

Question

Johnson Company’s sales budget projects unit sales of part A55Z of 14,200 units in January, 12,500 units in February, and 16,500 units in March. Each unit of part A55Z requires 2.0 kg of materials, which cost $2.50 per kg. Johnson Company wants its ending raw materials inventory to equal 45% of the next month’s production requirements, and its ending finished goods inventory to equal 25% of the next month’s expected unit sales. These goals were met at December 31, 2014.

Required:

a. Prepare a production budget for January and February 2015. b. Prepare a direct materials budget for January 2015.   

Explanation / Answer

Production budget

direct materisl budget

Janaury Feburary Sales units 14,200 12,500 Add: Ending inventory 3,125 4,125 total needs 17,325 16,625 less : opeining invnetory 3,550 4,125 Purchase required 13,775 12,500

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