Question: Production Budget and Direct Materials Purchases Budgets Smee Inc. produces all-natural organic peanut butter. The peanut butter is sold in 12-ounce jars. The sales budget for the first four months of the year is as follows:
Company policy requires that ending inventories for each month be 15 percent of next month's sales. At the beginning of January, the inventory of peanut butter is 36,000 jars. Each jar of peanut butter needs two raw materials: 24 ounces of peanuts and one jar. 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 on January 1.
Required: 1. Prepare a production budget for the first quarter of the year. Show the number of cans that should be produced each month as well as for the quarter in total.
2. Prepare separate direct materials purchases budgets for jars and for peanuts for the months of January and February.