Question

Black Diamond Company produces snow skis. Each ski requires 2 pounds of carbon fiber. The company’s management predicts that 6,700 skis and 7,700 pounds of carbon fiber will be in inventory on June 30 of the current year and that 167,000 skis will be sold during the next (third) quarter. A set of two skis sells for $470. Management wants to end the third quarter with 5,200 skis and 5,700 pounds of carbon fiber in inventory. Carbon fiber can be purchased for $16 per pound. Each ski requires 0.5 hours of direct labor at $21 per hour. Variable overhead is applied at the rate of $11 per direct labor hour. The company budgets fixed overhead of $1,799,000 for the quarter.

2. Prepare the third-quarter direct materials (carbon fiber) budget; include the dollar cost of purchases.

BLACK DIAMOND COMPANY
Direct Materials Budget
Third Quarter
Budgeted production
Materials needed for production (lbs.)
Total materials requirements (lbs.)
Direct materials to be purchased (lbs.)
Budgeted cost of direct materials purchases

Answer 1

1		Budgeted Production
				Units
		budgeted sales		167000
	add	Closing Inventory		5200
	less	opening inventory		6700
		Production		165500
2		Materials needed for production (lbs.)
		For production	165500*2lbps	331000
3		Total materials requirements (lbs.
		For production		331000
	add	closing inventory		5700
				336700
4		Direct materials to be purchased (lbs.)
		Material requirement		336700
	Less	opening inventory		7700
				329000
5		Budgeted cost of direct materials purchases
	a	Materials To be purchased		329000
	b	cost per unit ($)		16
	c	Total cost of purchase ($)	a*b	$ 5,264,000