Problem
Pargo Company is preparing its master budget for 2017. Relevant data pertaining to its sales, production, and direct materials budgets are as follows.
Sales. Sales for the year are expected to total 1,500,000 units. Quarterly sales are 22%, 23%, 24%, and 31%, respectively. The sales price is expected to be $38 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 15% 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 quarter's budgeted sales volume.
Direct materials. Each unit requires 2 pounds of raw materials at a cost of $11 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 495,000 pounds.
Prepare the sales, production, and direct materials budgets by quarters for 2017.
How do I determine the beginning finished goods inventory for Q1 in the production budget?