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

Question

Micro Products Inc. has developed a very powerful electronic calculator. Each calculator requires three small chips that cost $3 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 ear First Second Third Fourth 79,000 109,000 169,000 119,000 Year 3 First 99,000 Budgeted production, in calculators 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 stock-outs. For this reason, the inventory of chips at the end of a quarter must be equal to 20% of the following quarter's production needs. A total of 55,000 chips will be on hand to start the first quarter of year 2. Required. Prepare a direct materials purchases budget for chips, by quarter and in total, for year 2. At the bottom of your budget, show the dollar amount of purchases for each quarter and for the year in total Micro Products, Inc. Direct Materials Budget - Year 2 Quarter First Second Third Fourth Year Required production in calculators Number of chips per calculato Production needs-chips Total needs Required purchases-chips Total cost of purchases

Explanation / Answer

Direct material budget :

First Second Third Fourth Year Required production in calculators 79000 109000 169000 119000 476000 Number of chips per calculators 3 3 3 3 3 Production needs-chips 237000 327000 507000 357000 1428000 Add:Desired ending inventory 65400 101400 71400 59400 59400 Total needs 302400 428400 578400 416400 1487400 Less: Beginning inventory (55000) (65400) (101400) (71400) (55000) Required purchase 247400 363000 477000 345000 1432400 Total cost of purchase 742200 1089000 1431000 1035000 4297200

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