PREPARING A DIRECT MATERIALS PURCHASES BUDGET Sherwood, Inc. makes pet crates. Planned production in units for the first three months of the coming year is:

January 30,150 February 29,300 March 31,450 Each crate uses two plastic shells and one hardware kit. Company policy requires that ending inventories of raw materials for each month be 20 percent of the next month’s production needs. That policy was met for the ending inventory of December in the prior year. The cost of one plastic shell is $4. The cost of one hardware kit is $1.20.

Required:
. Calculate the ending inventory of plastic shells for December of the prior year, and for January and February. What is the beginning inventory of plastic shells for January?
. Prepare a direct materials purchases budgets for plastic shells for the months of January and February.
. Calculate the ending inventory of hardware kits for December of the prior year, and for January and February. What is the beginning inventory of hardware kits for January?
. Prepare a direct materials purchases budgets for hardware kits for the months of January and February.
Cornerstone Exercise