Fortin Limited produces and sells a single product, a wearable LED light for runners and cyclists. The analytics group at Fortin Limited
has developed the following information from the production budget for the upcoming year.
Units to be produced
First Second Third Fourth Year
Quarter Quarter Quarter Quarter
24,860 21,490 20,620 21,700 88,670
Each light requires two separate LED bulbs, each of which costs $2. To ensure enough LED bulbs are on hand to support short-term
production if a problem arises with the sole supplier, Fortin Limited maintains an ending inventory of 10% of the following quarter's
production needs. A total of 4,800 LED bulbs will be on hand to start the first quarter of the upcoming fiscal year. Management expects
sales in the fourth quarter of the upcoming year to be the same as the first quarter of the following year.
Required:
1. Prepare a direct materials purchases budget for LED bulbs, by quarter and in total, for the upcoming fiscal year. At the bottom of
your budget, show the dollar amount of purchases for each quarter and for the year in total. Hint: Fortin Limited maintains an ending
inventory of both raw materials and finished goods of 10% of the following quarter's production needs. Before preparing a direct
materials budget, the production budget must be prepared.
β Answer is complete but not entirely correct.
FORTIN LIMITED
Direct Materials Budget - Year 2
Quarter
First Second Third Fourth Year
Required production of lights 24,860β 21,490β 20,620β 21,700β 88,670β
Number of bulbs per light 2β 2β 2β 2β 2β
Total production needs-bulbs 49,720 42,980 41,240 43,400 177,340
Add: Desired ending inventory-bulbs 4,298β 4,124β 4,340β 4,972 X 4,972 X
Total needs-bulbs 54,018 47,104 45,580 48,372 182,312
Less: Beginning inventory-bulbs 4,800β 4,298β 4,124β 4,340β 4,800β
Required purchases-bulbs 49,218 42,806 41,456 44,032 X 177,512 X
Total cost of purchases $ 98,436 $ 85,612 $ 82,912 $ 88,064 X $ 355,024 X