Production Budget and Direct Materials Purchases Budgets

Pets Plus, Inc. produces otic fluid for dogs. The otic fluid is sold in 12-ounce plastic bottles. The sales budget for the first four months of the year is as follows:

Month	Unit Sales
January	50,000
February	85,000
March	80,000
April	42,000

Company policy requires that ending inventories for each month be 20% of next month's sales. At the beginning of January, the inventory of otic fluid is 37,000 bottles. Each bottle of otic fluid needs two raw materials: eight ounces of a mix of salicylic acid and water and one plastic bottle. Company policy requires that ending inventories of raw materials for each month be 20% of the next month's production needs. That policy was met on January 1.

Question Content Area

1. Prepare a production budget for the first quarter of the year. Show the number of bottles that should be produced each month as well as for the quarter in total.

Line Item Description	January	February	March	Total
Sales
Desired ending inventory
Total needs
Less: Beginning inventory
Units produced

Feedback Area

Feedback

The production budget is in units. Fill in the units for sales from the amounts provided. The desired ending inventory is added to the number of units to be produced and is calculated based on future sales. Beginning inventory is subtracted to determine units to be produced. Beginning inventory is given for the first month and is carried forward from the previous month for later months.

Review the "How to Prepare a Production Budget" example in the text.

Question Content Area

2. Prepare a direct materials purchases budget for bottles for the months of January and February. Round all calculations to the nearest whole number.

Line Item Description	January	February	Total
Production
Bottles
Bottles for production
Desired ending inventory
Total needs
Less: Beginning inventory
Bottles purchased

Feedback Area

Feedback

Fill in the units produced from Requirement 1.

Production in units x Materials per unit = Direct Materials Needed for Production

The desired ending inventory for materials is added to the materials to be purchased and is calculated based on future production. Note that the percentage of desired materials inventory does not match the percentage of desired completed inventory. Beginning inventory is calculated from current month production for the first month and is carried forward from the previous month for later months.

Direct Materials Needed for Production + Direct Materials in Desired Ending Inventory Direct Materials in Beginning Inventory = Purchases

Review the "How to Prepare a Direct Materials Purchases Budget" example in the text.

Question Content Area

Prepare a direct materials purchases budget for salicylic acid and water mixture for the months of January and February. Round all calculations to the nearest whole number.

Line Item Description	January	February	Total
Production
Ounces
Ounces for production
Desired ending inventory
Total needs
Less: Beginning inventory
Ounces purchased