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Problem 9-4

Karam Inc. has compiled the following data in order to put together their first quarter operating budget for 2011:

	January	February	March	April
Sales (units)	35,000	31,000	38,000	29,000

Each unit requires three hours of direct labor.

Additional information: Karam sells each unit for $95. Company policy is to have 30 percent of next month's sales (in units) in ending finished goods inventory. Company policy is to have 40 percent of next month's production needs in ending raw materials inventory. The production needs for April is 95,500. It takes three pounds of material to produce each unit and the cost is $2.75/pound.

Required:

A. Prepare a sales budget for the January, February and March and for the first quarter in total.

Karam Inc.
Sales Budget
For the Quarter Ended March 31, 2011
	January	February	March	Total
Sales in units
Unit selling price	$	$	$	$
Budgeted sales	$	$	$	$

B. Prepare a production budget for January, February and March and for the first quarter in total.

Karam Inc.
Production Budget
For the Quarter Ended March, 31, 2011
	January	February	March	Total
Sales in units (given)
Desired ending inventory
Total needs
Less: Beginning inventory
Units to be produced

C. Prepare a direct materials purchases budget for January, February and March and for the first quarter in total.

Karam Inc.
Production Budget
For the Quarter Ended March 31, 2011
	January	February	March	Total
Units to be produced
Direct materials per unit
Production needs
Desired ending inventory
Total needs
Less: Beginning inventory
Direct materials to be purchased
Cost per pound	$	$	$	$
Total purchase cost	$	$	$	$

P

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