Calculator Production Budget and Direct Materials Purchases Budgets Peanut Land Inc. produces all-natural organic peanut butter. The peanut butter is sold in 12-ounce jars. The sales budget for the first four months of the year is as follows: Unit Sales Dollar Sales ($) January 80,000 176,000 February 50,000 110,000 March 40,000 88,000 April 46,000 101,200 Company policy requires that ending inventories for each month be 25% of next month's sales. At the beginning of January, the inventory of peanut butter is 33,000 jars. Each jar of peanut butter needs two raw materials: 24 ounces of peanuts and one jar. Company policy requires that ending inventories of raw materials for each month be 20% of the next month's production needs. That policy was met on January 1. Required: 1. Prepare a production budget for the first quarter of the year. Show the number of jars that should be produced each month as well as for the quarter in total.

Explanation:

Sales budget

                      $Revenue         Unit      

January           176,000        80,000

February          110,000        50,000

March                88,000        40,000

April                   101,200       46,000

Ending inventory = 25% of next month sales

Ending inventory in December = 25% of next month sales.

Opening inventory in January = 33,000 units

January (80000-33000)+25% *50000 = 59,500 units

February = (50000 -12500) + 25%*40000 = 47,500 units

March = (40,000-10,000) +25%*46,000 = 41,500 units

April =46000-11,500= 34,500 units

                             Raw materials          Peanut            Jars

January      59,500 * 24                     1,428,000         59,500

February     47,500*24                        1,140,000         47,500

March          41,500 *24                       996,000           41,500

April             34,500 *24                        828,000          34,500

Company policy for production requires that ending inventory is 20% of next month production

                             Peanut production                                                

January  1428000 + (20%* 1140000)   =  1,656,000    

February = (1140000-228000) + (20%*996,000)  = 1,111,200

March = (996,000-199,200 ) + (20% * 828,000) =962,400

April 828,000- 165,500 = 662,400        

Total peanut production = 4,392,000

                         Jars production

January = 59500 + (20% * 47,500)= 69,000

February = (47,500-9500) + (20% * 41,500) = 46,300

March = (41,500 - 8,300) + (20% * 34,500) 40,100

April = 34,500-6900 =27600

Total = 183,000

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