Question

CHOP Inc., which makes only one product, Yester, has the following information available for the coming year. CHOP expects sales to be 27,000 units at $32 per unit. The current inventory of Yester is 3,500 units. CHOP wants an ending inventory of 4,200 units. Each unit of Yester takes two units of component K. Component K is estimated to cost $9 per unit. Current inventory of K is 3,900 units. CHOP wants 5,800 units of K on hand at the end of the next year.
How much will the direct materials budget show as the cost of materials to be purchased?

Answer 1

Direct Materials Purchases Budget
Production requirement	27,700
x Direct materials per unit	2
Total pounds needed for production	55,400
Add: Desired ending inventory	5,800
Total material required	61,200
less: Beginning inventory	-3,900
Purchase requirement	57,300
x Cost per pound	$ 9
Total cost of direct materials purchased	$ 515,700

Calculations:

Production budget
Sales	27,000
Add: Ending inventory	4,200
	31,200
Less: Beginning inventory	-3,500
Production requirement	27,700

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