Do It! Review 21-2

Pargo Company is preparing its master budget for 2017. Relevant data pertaining to its sales, production, and direct materials budgets are as follows.

Sales.

Sales for the year are expected to total1,900,000units. Quarterly sales are22%,26%,27%, and25%, respectively. The sales price is expected to be $41per unit for the first three quarters and $44per unit beginning in the fourth quarter. Sales in the first quarter of 2018 are expected to be15% higher than the budgeted sales for the first quarter of 2017.

Production.

Management desires to maintain the ending finished goods inventories at20% of the next quarter's budgeted sales volume.

Direct materials.

Each unit requires2pounds of raw materials at a cost of $10per pound. Management desires to maintain raw materials inventories at10% of the next quarter's production requirements. Assume the production requirements for first quarter of 2018 are495,000pounds.

Prepare the sales, production, and direct materials budgets by quarters for 2017.