The Howell Company has prepared a sales budget of 46,000 finished units for a 3- month period. The company has an inventory of 10,000 units of finished goods on hand at December 31 and has a target finished goods inventory of 13,000 units at the end of the succeeding quarter.
It takes 2 gallons of direct materials to make one unit of finished product. The company has an inventory of 62,000 gallons of direct materials at December 31 and has a target ending inventory of 52,000 gallons at the end of the succeeding quarter.
1. How many gallons of direct materials should Howell Company purchase during the 3 months ending March 31?
2. What questions might the CEO ask of the operating manager when reviewing the budget?