Micro Products, Inc., has developed a very powerful electronic calculator. Each

Question

Micro Products, Inc., has developed a very powerful electronic calculator. Each calculator requires two small "chips" that cost $5 each and are purchased from an overseas supplier. Micro Products has prepared a production budget for the calculator by quarters for Year 2 and for the first quarter of Year 3, as shown below: The chip used in production of the calculator is sometimes hard to get, so it is necessary to carry large inventories as a precaution against stockouts. For this reason, the inventory of chips at the end of a quarter must equal 20% of the following quarter's production needs. A total of 23,600 chips will be on hand to start the first quarter of Year 2. Required: Prepare a direct materials budget for chips, by quarter and in total, for Year 2. (Do not round intermediate calculations.)

Explanation / Answer

Micro Products, Inc.

Direct Materials Budget - Year 2

Quarter Year first second third fourth Required Production in Calculators 59000 86000 146000 101000 392000 Number of chips per Calculator 2    2 2 2    2    Production needs - chips 118000 172000 292000 202000 784000 Closing Balance required of chips 34400 58400 40400 30800 164000 Total Needs 152400 230400 332400 232800 948000 Opening Balance of chips 23600 34400 58400 40400 156800 Required Purchases - chips 128800 196000 274000 192400 791200 Total cost of purchases 644000 980000 1370000 962000 3956000

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