Concept explainers
Pargo Company is preparing its
Sales. Sales for the year are expected to total 1,000.000 units. Quarterly sales are 20%, 25%, 25%, and 30%, respectively. The sales price is expected to be $40 per unit for the first three quarters and $45 per unit beginning in the fourth quarter. Sales in the first quarter of 2018 are expected to be 20% higher than the budgeted sales for the first quarter of 2017.
Production. Management desires to maintain the ending finished goods inventories at 25% of the next quarters budgeted sales volume.
Direct materials. Each unit requires 2 pounds of raw materials at a cost of $12 per pound. Management desires to maintain raw materials inventories at 10% of the next quarter’s production requirements. Assume the production requirements for first quarter of 2018 are 450,000 pounds.
Prepare the sales, production, and direct materials budgets by quarters for 2017.
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