McKnight 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, McKnight Industries has a policy that states that the ending inventory of computer chips should be at least 20% of the following month's production needs. The production schedule for the first four months of the year is as follows:

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.

Stuffed animals to be produced 5,500 4,700 January..... February .... March April .... 4,900 4,100 McKnight 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 Less: Beginning inventory of direct materials Quantity to purchase Multiply by: Cost per unit Total cost of direct material purchases