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Pargo Company is preparing its master budget for 2017. Relevant data pertaining to its sales, production, and direct materials budgets are as follows.

Sales. Sales for the year are expected to total 1,200,000 units. Quarterly sales are 18%, 25%, 23%, and 34%, respectively. The sales price is expected to be $38 per unit for the first three quarters and $47 per unit beginning in the fourth quarter. Sales in the first quarter of 2018 are expected to be 10% higher than the budgeted sales for the first quarter of 2017.

Production. Management desires to maintain the ending finished goods inventories at 25% of the next quarter’s budgeted sales volume.

Direct materials. Each unit requires 2 pounds of raw materials at a cost of $12 per pound. Management desires to maintain raw materials inventories at 10% of the next quarter’s production requirements. Assume the production requirements for first quarter of 2018 are 500,000 pounds.

Prepare the sales, production, and direct materials budgets by quarters for 2017.

Answer 1

Sales, production, and direct materials budgets by quarters for 2017 is as shown below:

Pargo Company
Sales Budget
	Quarter
	1	2	3	4	Year
Expected Unit sales	216,000	300,000	276,000	408,000	1,200,000
Unit selling price	38	38	38	47
Total sales	8,208,000	11,400,000	10,488,000	19,176,000	49,272,000
Pargo Company
Production Budget
	Quarter
	1	2	3	4	Year
Total sales	216,000	300,000	276,000	408,000	1,200,000
$//img.homeworklib.com/questions/2f3dfef0-72cb-11ea-80e9-3b59924d3bbe.gif?x-oss-process=image/resize,w_560$ $//img.homeworklib.com/questions/2f3dfef0-72cb-11ea-80e9-3b59924d3bbe.gif?x-oss-process=image/resize,w_560$ Desired Ending Finished Goods	75,000	69,000	102,000	59,400	59,400
Total Required volume	291,000	369,000	378,000	467,400	1,259,400
Beginning finished goods	54,000	75,000	69,000	102,000	54,000
Total production	237,000	294,000	309,000	365,400	1,205,400
Pargo Company
Direct material Budget
	Quarter
	1	2	3	4	Year
Budgeted production	237,000	294,000	309,000	365,400	1,205,400
Raw material required for 1 unit	2	2	2	2	2
Total Raw material Required	474,000	588,000	618,000	730,800	2,410,800
Add: Ending Raw material	58,800	61,800	73,080	50,000	50,000
Less: Opening raw material	47,400	58,800	61,800	73,080	47,400
Total raw material purchase	485,400	591,000	629,280	707,720	2,413,400
Cost of 1 pound	12	12	12	12	12
Cost of Material purchased	5,824,800	7,092,000	7,551,360	8,492,640	28,960,800

Working:

Pargo Company
Sales Budget
	Quarter
	1	2	3	4	Year
Expected Unit sales	1200000*18%	1200000*25%	1200000*23%	1200000*34%
Unit selling price	38	38	38	47
Total sales
Year 2018
Quarter 1
216,000+ (216,000*.10)	21600	237600
47
11,167,200