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EXERCISE 9-3 Direct Materials Purchases Budget (102) Micro Products Inc. has developed a very powerful electronic calculator. Each calculator requires three small chips that cost $3 each and are purchased from an overseas supplier. Micro Products has prepared a production budget for the calculator by quarters for year 2 and for the first quarter of year 3. as shown below: Year 2 Second Third Year 3 First First Fourth Budgeted production, in calculators .......... 60.000 90,000 150,000 100,000 80,000 The chip used in production of the calculator is sometimes hard to get. so it is necessary to carry large inventories as a precaution against stock-outs. For this reason, the inventory of chips at the end of a quarter must be equal to 20% of the following quarter's production needs. A total of 36,000 chips will be on hand to start the first quarter of year 2. Required: Prepare a direct materials purchases budget for chips, by quarter and in total, for year 2. At the bot- tom of your budget. show the dollar amount of purchases for each quarter and for the year in total