Micro Products Inc. has developed a very powerful electronic calculator. Each calculator requires three small chips that cost $3 each and are purchased from an overseas supplier. Micro Products has prepared a production budget for the calculator by quarters for year 2 and for the first quarter of year 3, as shown below:

	Year 2					Year 3
	First	Second	Third	Fourth		First
Budgeted production, in calculators	71,000	101,000	161,000	111,000		91,000

The chip used in production of the calculator is sometimes hard to get, so it is necessary to carry large inventories as a precaution against stock-outs. For this reason, the inventory of chips at the end of a quarter must be equal to 20% of the following quarters production needs. A total of 47,000 chips will be on hand to start the first quarter of year 2.

Required: Prepare a direct materials purchases budget for chips, by quarter and in total, for year 2. At the bottom of your budget, show the dollar amount of purchases for each quarter and for the year in total.

Micro Products, Inc. Direct Materials Budget - Year 2 Quarter First Second Third Fourth Year Required production in calculators Number of chips per calculator Production needs-chips Deduct: Beginning inventory Total needs Add: Ending inventory Required purchaseschips Total cost of purchases 0 0 0 0 0