Question

CALCULATOR PRINTER VERSION BACK NEXT Do It Review 21-2 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 1.400.000 units. Quarterly sales are 184.254.24% and 32% respectively. The sales price is expected to be $40 per unit for the first three quarters and 546 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 20% 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 505,000 pounds. Prepare the sales, production, and direct materials budgets by quarters for 2017 PARGO COMPANY Sales Budget Quarter Expected unit sales Unit selling price Total sales a) PARGO COMPANY Production Budget Quarter

Answer 1

Sales budget by quarter for 2017 :

Pargo Company
Sales Budget
	Quarter
	1	2	3	4	Year
Expected unit sale	252,000	364,000	336,000	448,000	2017
	18% of 1,400,000	26% of 1,400,000	24% of 1,400,000	32% of 1,400,000
Unit selling price($)	40	40	40	46
Total Sales($)	10,080,000	14,560,000	13,440,000	20,608,000	58,688,000
(expected units*unit selling price)

Production budget by quarter for 2017 :

Pargo Company
Production Budget
	Quarter
	1	2	3	4	Year
Next quarter of budgeted sales volume	364,000	336,000	448,000	277,200	2017
FG % to be maintained	20%	20%	20%	20%
Ending FG inventories	72,800	67,200	89,600	55,440	285,040
expected sale units	252,000	364,000	336,000	448,000
Total Production units	324,800	431,200	425,600	503,440	1,685,040
(Ending FG inventory + expected sale units)
Note: The 4th quarter budgeted sales volume is 0% of 2018 's 1st quarter sales volume. 1st quarter sales for 2018 is expected to be 10% higher than the 1st quarter sale of 2017. Hence 10% on 252,000 = 25,200. The next quarter budgeted sale volume for 4th quarter 2017 is 252,000+25,200 = 277,200

Direct Material Budget by quarters for 2017 :

Pargo Company
Direct Material Budget
	Quarter
	1	2	3	4	Year
Next quarters production requirement	431,200	425,600	503,440	505,000	2017
RM inventory % to be maintained	10%	10%	10%	10%
RM Inventory	43,120	42,560	50,344	50,500
Total Production units	324,800	431,200	425,600	503,440
Total pounds of RM required for producing total production units	649,600	862,400	851,200	1,006,880
(each unit requires 2 pounds of RM. So Total production units * 2)
Total RM requirement(in pounds)	692,720	904,960	901,544	1,057,380
(RM inventory + Total pounds of RM required for producing total production units)
Cost per pound of RM($)	12	12	12	12
Total Direct Material Cost($)	8,312,640	10,859,520	10,818,528	12,688,560	42,679,248
(Total RM requirement*cost per pound of RM)
Note : For the 4th quarter, 1st quarter 2018 production requirement of 505,000 pounds is considered for computing RM inventory for 4th quarter