Patrick Inc. makes industrial solvents sold in five- gallon drums. Planned production in units for the first three 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. Company policy requires that ending inventories of raw materials for each month be 15 percent 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:
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. Prepare a direct materials purchases budgets for chemicals for the months of January and February.
3. Calculate the ending inventory of drums for December of the prior year, and for January and February.
4. Prepare a direct materials purchases budgets for drums for the months of January and February.