PRODUCTION BUDGET AND DIRECT MATERIALS PURCHASES BUDGETS Seafood Inc. produces shrimp in cans. The sales budget for the first four months of the year is as follows:

Unit Sales Dollar Sales ($)

January 200,000 150,000 February 240,000 180,000 March 220,000 165,000 April 200,000 150,000 Company policy requires that ending inventories for each month be 35 percent of next month’s sales. At the beginning of January, the inventory of shrimp is 36,000 cans.

Each can of shrimp needs two raw materials: four ounces of shrimp and one can.

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 on January 1.

Required:

. Prepare a production budget for the first quarter of the year. Show the number of cans that should be produced each month as well as for the quarter in total.

. Prepare separate direct materials purchases budgets for cans and for shrimp for the months of January and February.

Exercise