Case Study:

ABC Company sells a single product. Each unit takes two pounds of material and costs $3.00 per pound. Company A has prepared a production budget by quarters for Year 2 and for the first quarter of Year 3, as follows:

Budgeted production

Year 2 Year 3

First Second Third Fourth First

30,000 60,000 90,000 100,000 50,000

The ending inventory at the end of a quarter must be equal to 25% of the following quarters production needs. 26,000 pounds of material are on hand to start the first quarter of Year 2. Purchases are paid for 40% in the quarter of purchase and 60% in the following quarter.

Requirement:

1. Prepare direct materials budget for the chips by quarter and in for Year 2 in total including the dollar amount of purchases.
2. Prepare cash disbursements budget for the chips by quarter and in for Year 2 in total including the dollar amount of purchases.