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 quarter's production needs. A total of 55,000 chips will be on hand to start the first quarter of year 2.

Required: Make 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 Total needs Required purchases-chips Total cost of purchases