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                      23,000 units
August                    26,000 units
September                 9,000 units
October                   23,000 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 $3 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 = $180,600

Working

Purchases budget
	July	August
Units to be produced	23000	26000
Multiply by Quantity of Direct material needed per unit	2.5	2.5
Quantity needed for Production	57500	65000
Plus: Desired Ending inventory of direct materials	23400
Total Quantity needed	80900
Less: Beginning inventory for direct materials*	20700
Quantity to purchase	60200
Multiply by Cost per unit	$                 3.00
Total Cost of direct material purchases	$    180,600.00

*Beginning inventory of Direct material is 36% of total pounds needed for production in July because that would have been desired ending inventory of June