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 four small “chips” that cost $6 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: Year 2 Year 3 First Second Third Fourth First Budgeted production, (Calculators) 57,000 82,000 151,000 96,000 73,000 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 15% of the following quarter’s production needs. Required: Prepare a direct materials budget for chips, by quarter and in total, for Year 2. (Do not round intermediate calculations. Input all amounts as positive values.)

Explanation / Answer

Quarter1 2 3 4 TotAL Production requirement 57000 82000 151000 96000 chips per calculator 4 4 4 4 Chips used in production 228000 328000 604000 384000 1544000 Ending inventory desired 49200   [328000*.15] 90600   [604000*.15] 57600   [384000*.15] 43800 [73000*4*.15] 241200 less:Beginning inventory (colsing of last) (34200)   [228000*.15] (49200) (90600) (57600) (231600) Chips purchased 243000 369400 571000 370200 1553600 cost per chip 6 6 6 6 6 pURchase cost 1458000 2216400 3426000 2221200 9321600

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