Donaldson Industries manufactures a popular interactive stuffed animal for children that requires two computer chips inside each toy. The company pays $4 for each computer chip. To help to guard against stockouts of the computer chip, Donaldson Industries has a policy that states that the ending inventory of computer chips should be at least 30% of the following month's production needs. The production schedule for the first four months of the year is as follows:

Stuffed animals to be produced

January. . . . .5,500

February. . . .4,300

March. . . . . .4,700

April. . . . . . .4,600

Requirement

Prepare a direct materials budget for the first quarter that shows both the number of computer chips needed and the dollar amount of the purchases in the budget.

Prepare the direct materials budget by first calculating the total quantity needed, then complete the budget.

Donaldson Industries

Direct Materials Budget

For the Months of January through March

January February March Quarter

Units to be produced _________ _________ ________ ________

Multiply by: Quantity of direct materials needed per unit _________ _________ _________ ________

Quantity needed for production __________ _________ __________ _________

Plus: Desired ending inventory of direct materials __________ __________ __________ _________

Total quantity needed __________ __________ __________ _________