# 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.

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

 January

 February
 Production in units

 Gallons per unit

 Gallons for production

 Desired ending inventory

 Needed

 Less: Beginning inventory

 Direct materials to be purchased

 Price per gallon

 \$

 \$
 Dollar purchases

 \$

 \$