Question

ABC Company makes and sells a single product. It requires
4 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                      ?????? units
August                    17,000 units
September                 44,000 units
October                   28,000 units

The company wants to maintain monthly ending inventories of
direct materials equal to 28% of the next month's production
needs. The cost of direct materials is $3.25 per pound.

Assume ABC Company pays for 80% of a month's purchase of
direct materials in the month of purchase and the other 20%
is paid in the following month.

Calculate the budgeted cash payments for direct materials in
September.

Answer 1

	August	September	October
Units to be produced	17000	44000	28000
Pounds of Raw Material Required for Production [4 pounds per unit] (A)	68000	176000	112000
Ending Inventory (28% of Next month Production Requirement) (B)	49280	31360	NA
Beginning Inventory (C)	19040	49280	31360
Pounds of Raw Material to be purchased (A+B-C)	98240	158080	NA
Amount of Purchase @ 3.25 per Pound ($)	319280	513760

Budgeted Cash cash payment for September Month for Purchases:
	Amt in $
- 20% for Purchases done in August Month [319280*20%]	63856
- 80% for Purchases done in September Month [513760*80%]	411008
Total Cash paid in September	474864