Chapter 9, Problem 9.21AE

Direct materials budget (Learning Objective 2)

Sacco Industries manufactures a popular interactive stuffed animal for children that requires three computer chips inside each toy. The company pays $2 for each computer chip. To help to guard against stockouts of the computer chip, Sacco Industries has a policy stating that the ending inventory of computer chips should be at least 25% of the following month’s production needs. The production schedule for the first four months of the year is as follows:

	Stuffed animals to be produced
January	5,600
February	4,800
March	4,200
April	4,000

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.