Question

Cleary Industries manufactures a popular interactive stuffed animal for children that requires two computer chips inside each toy. The company pays $3 for each computer chip. To help to guard against stockouts of the computer chip. Cleary Industries has a policy that states that the ending inventory of computer chips should be at least 20% of the following month's production needs. The production schedule for the first four months of the year is as follows: (Click the icon to view the production schedule.) Requirement Prepare a direct materials budget for the first quarter that shows both the number of computer chips needed and the dollar amount of the purchases in the budget Prepare the direct materials budget by first calculating the total quantity needed, then complete the budget Cleary Industries Direct Materials Budget For the Months of January through March January February March Quarter

Answer 1

Cleary Industries
Direct Materials Budget
For the Months of January through March
	January	February	March	Quarter
Units to be produced	5000	4500	4200	13700
Multiply by: Quantity of direct materials needed per unit	2	2	2	2
Quantity needed for production	10000	9000	8400	27400
Plus: Desired ending inventory of direct materials	1800	1680	1720	1720
Total quantity needed	11800	10680	10120	29120
Less: Beginning inventory of direct materials	2000	1800	1680	2000
Quantity to purchase	9800	8880	8440	27120
Multiply by: Cost per unit	$3	$3	$3	$3
Total cost of direct materials purchases	$29400	$26640	$25320	$81360

Calculation of Desired ending inventory

January= 9000*20%= 1800

February= 8400*20%= 1680

March= 4300*2*20%= 1720

Calculation of Beginning inventory

January= 10000*20%= 2000