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                      13,000 units
August                    40,000 units
September                 39,000 units
October                   37,000 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 $6 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 Jul = $ 340,800

		July
A	Units to be produced	13000
B	Pounds required per unit	2.5	pounds
C = A x B	Total material required for production	32500	pounds
D = 40000 units x 2.5 pounds x 36%	Desired ending inventory of material	36000	pounds
E = C x 36%	Beginning material inventory	11700	pounds
F = C+D-E	Raw material to be purchased	56800	pounds
G	Cost per pound	$6
H = F x G	Total Cost of direct materials to be purchased	$340,800	Answer