Question

ABC Company makes and sells a single product. It requires
2.5 pounds of direct materials to produce one unit of this
product. Budgeted units to be produced for the next four
months is given below:

                  Budgeted Units to be Produced            
July                      21,000 units
August                    9,000 units
September                 31,000 units
October                   49,000 units

The company wants to maintain monthly ending inventories of
direct materials equal to 36% of the next month's production
needs. The cost of direct materials is $7 per pound.

Calculate the total cost of direct materials to be purchased
in July.

Answer 1

--Total Cost of direct materials to be purchased in July = $ 291,900

		July
A	Units to be produced	21000
B	Pounds required per unit	2.5	pounds
C = A x B	Total material required for production	52500	pounds
D = 9000 units x 2.5 pounds x 36%	Desired ending inventory of material	8100	pounds
E = C x 36%	Beginning material inventory	18900	pounds
F = C+D-E	Raw material to be purchased	41700	pounds
G	Cost per pound	$7
H = F x G	Total Cost of direct materials to be purchased	$291,900	Answer