Accounting – Preparing a DM Purchases Budget

Preparing a Direct Materials Purchases Budget

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   40,000    
February   50,000    
March   65,000    

Each drum requires 6 gallons of chemicals and one plastic drum. Company policy requires that ending inventories of raw materials for each month be 20 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.

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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? Round your answers to the nearest whole gallon.

Ending inventory for December:      _________________   gallons

Ending inventory for January:      _________________   gallons

Ending inventory for February:      _________________   gallons

Beginning inventory for January:     _________________   gallons


2. Prepare a direct materials purchases budget for chemicals for the months of January and February. Round Gallons per unit to one decimal place. Round Price per gallon to the nearest cent. Round Dollar purchases to the nearest dollar. Round all the other values to the nearest whole unit. Do not include a multiplication symbol as part of your answer.

Patrick Inc.
Direct Materials Purchases Budget – Chemicals in Gallons
For the Months of January and February
Production in units
Gallons per unit
Gallons for production
Desired ending inventory
Less: Beginning inventory
Direct materials to be purchased
Price per gallon
Dollar purchases





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