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

January 43,800
February 41,000
March 50,250

Each drum requires 5.5 gallons of chemicals and one plastic drum container. 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.

Required:
a. 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?
b. Prepare a direct materials purchases budget for chemicals for the months of January and February. Do not include a multiplication symbol as part of your answer.
c. Calculate the ending inventory of drums for December of the prior year, and for January and February. Round your answers to the nearest whole unit.
d. Prepare a direct materials purchases budget for drums for the months of January and February. Do not include a multiplication symbol as part of your answer.

Respuesta :

Answer:

a. Ending inventory of chemicals

  December       36.135 gallons

  January            33,825 gallons

  February          41,456 gallons

The beginning inventory of chemicals in January is the ending inventory of December - 36,125 gallons.

b. Direct Materials Purchase Budget for chemicals

   Purchases for January  223,190 gallons - $ 446,380

   Purchases for February 284,006 gallons -$ 568.012  

c, Ending inventory balances of drums

  December     6,570 drums

  January          5,150 drums

   February        7,538 drums

d. Direct Materials Purchase Budget for drums

    Purchases for January  40,580 druma - $ 64,928

    Purchases for February 51,638 drums  -$ 82,621  

Explanation:

Computations for Ending inventory of chemicals in gallons

                                                           December      January          February

Units planned for next month              43,800           41,000              50,250

Per unit chemical requirement                                5.5 gallons

Total requirement for next month       240,900        225,500          276.375    

Inventory requirement - 15 %                  36,135           33.825              41,456

Calculations of a Direct Materials Purchase budget for chemicals

Purchases = Ending inventory + Consumption - Opening inventory

Purchases of chemicals for January

33,825 + 225,500-36,135   = 223.190 gallons at $ 2 per gallon = $ 446,380

Purchases of chemicals for February

41,456+ 276375 - 33,825 = 284,006 gallons at $ 2 per gallon  = $ 568,012

Computations for ending inventory of Drums

                                                           December      January          February

Units planned for next month              43,800           41,000              50,250

Inventory requirement - 15 %                 6,570             6,150                 7,538

Calculations of a Direct Materials Purchase budget for drums

Purchases = Ending inventory + Consumption - Opening inventory

Purchases of drums  for January

6,150 + 41,000-6,570   =  40,580 drums at $ 1.60 per drum = $ 64,928

Purchases of chemicals for February

7,538 + 50,250 - 6,150 = 51,638 drums at $ 1.60 per drum  = $ 82,621