The Snart Company has prepared a sales budget of 44,000 finished units for three months. The company has an inventory of 13,000 finished goods on hand on December 31 and a target finished goods inventory of 18,000 units at the end of the succeeding quarter. It takes 2 gallons of direct materials to make one unit of the finished product. The company has an inventory of 61,000 gallons of direct materials on December 31 and has a target ending inventory of 54,000 gallons at the end of the succeeding quarter.

Requirement 1. How many gallons of direct materials should Snart Company purchase during the three months ending March 31?

Requirement 2. What questions might the CEO ask of the operating manager when reviewing the budget? (Select three that apply.)

1. Can fewer than gallons of direct materials be used to produce each unit of the finished product by reducing waste and improving quality and efficiency?

2. Can the target ending direct materials inventory be increased to allow for a larger supply in the following year?

3. Has the target finished goods ending inventory considered the level of employees required to produce the inventory needed to still be of good quality?

4. Is the sales budget for finished units for the 3-month period an amount that can be increased through increased production?

5. Is the increased finished goods ending inventory because of anticipated production or quality problems?

6. Can the target finished goods ending inventory be reduced to reduce inventory-related costs?

Direct Material Purchases Budget X Purchases to be made (in gallons)