BUS$2102$ Managerial Accounting

Chapter $9$ Examples

Example $9\mathrm{.}3$ How to Prepare a Direct Materials Purchases Budget

Budgeted units to be produced for each quarter: $1,060,1,260,1,600$ and $1,800.$ Plain T$-$shirts cost $$3$ each, and ink $($for the screen printing$)$ costs $$0\mathrm{.}20$ per ounce. On a per$-$unit basis, the factory needs one plain T$-$shirt and five ounces of ink for each logoed T$-$shirt that it produces. Texas Rex's policy is to have $10\%$ of the following quarter's production needs in ending inventory. The factory has $58$ plain T$-$shirts and $390$ ounces of ink on hand on January $1.$ On December $31,$ the desired ending inventory is $106$ plain T$-$shirts and $530$ ounces of ink.

Required:

Calculate the ending inventory of plain T$-$shirts and of ink for quarters $1,2$ and $3.$

Prepare a direct materials purchases budget for plain T$-$shirts, and for one ink.