Question

Niwot Company’s sales budget projects unit sales of part 198Z of12,600 units in January, 15,800 units in February, and 16,800 unitsin March. Each unit of part 198Z requires 2 pounds of materials,which cost $5 per pound. Niwot Company desires its ending rawmaterials inventory to equal 40% of the next month’s productionrequirements, and its ending finished goods inventory to equal 20%of the next month’s expected unit sales. These goals were met atDecember 31, 2013.

1. Prepare a production budget for January and February2014.

2. Prepare a direct materials budget for January 2014