Question

Problem 2. Two pounds of organic flour are required for each pack of pasta made by Healthy Food Inc. The cost of organic flour is $0.5 per pound. Budgeted production of Healthy Food Inc.’s pasta (in pack) for January to April is as follows:

	January	February	March	April
Budged production of pasta, in pack	80,000	70,000	60,000	50,000

As part of the company’s policy, the inventory of organic flour at the end of a month must be equal to 20% of the following month’s production needs. The beginning inventory of organic flour for January is 32,000 pounds.

1. Prepare a direct materials budget for organic flour, by month and in total for January, February, and March.

Problem 2
a. Prepare a direct materials budget for organic flour, by month and in total for January, February, and March.
	January	Feburary	March	Total

Answer 1

Direct Materail budget as follows  

Particular	Jan	Feb	March
Opening Inventory (A)	32,000	28,000	24,000
Add Required for current month Production ( 2 pounds fresh flour for each packet of pasta) (B)	1,60,000 (80000*2)	1,40,000 (70000*2)	1,20,000 (60,000*2)
Closing Inventory required ( 20% for next month) (C)	28,000 (70000*2=1,40,000*20/100)	24,000 (60000*2=120000*20%)	20,000 (50,000*2=100000*20%)
Direct Material Budget required (B+C-A) in pounds	1,56,000	1,36,000	1,16,000

NOTE: Above solution is given in quantity only if required in amount $ simply multiply with 0.5$ per pounds