Chapter 9, Problem 23BEA

Preparing a Direct Materials Purchases Budget

Patrick Inc. makes industrial solvents sold in 5-gallon drums. Planned production in units for the first 3 months of the coming year is:

Each drum requires 5.5 gallons of chemicals and one plastic drum. Company policy requires that ending inventories of raw materials for each month be 15% of the next month’s production needs. That policy was met for the ending inventory of December in the prior year. The cost of one gallon of chemicals is $2.00. The cost of one drum is $1.60. (Note: Round all unit amounts to the nearest unit. Round all dollar amounts to the nearest dollar.)

Required:

1. 1. Calculate the ending inventory of chemicals in gallons for December of the prior year and for January and February. What is the beginning inventory of chemicals for January?
2. 2. Prepare a direct materials purchases budget for chemicals for the months of January and February.
3. 3. Calculate the ending inventory of drums for December of the prior year and for January and February.
4. 4. Prepare a direct materials purchases budget for drums for the months of January and February.