Question

Ayayai Industries has adopted the following production budget for the first 4 months of 2017.

Month		Units		Month		Units
January		10,130		March		5,120
February		8,490		April		4,380

Each unit requires 5 pounds of raw materials costing $2 per pound. On December 31, 2016, the ending raw materials inventory was 9,180 pounds. Management wants to have a raw materials inventory at the end of the month equal to 20% of next month’s production requirements.

Prepare a direct materials purchases budget by month for the first quarter.

Answer 1

Solution

Ayayai Industries
Direct Materials Purchases Budget
For the Month from January through March
	January	February	March
Budgeted production (units)	10130	8490	5120
Materials requirements per unit	5	5	5
Materials needed for production (pounds)	50650	42450	25600
Budgeted ending inventory (pounds)	8490	5120	4380*
Total materials requirements (pounds)	59140	47570	29980
Beginning inventory (pounds)	9180	8490	5120
Materials to be purchased (pounds)	49960	39080	24860
Cost per pound	$        2.00	$         2.00	$         2.00
Total budgeted direct materials cost	$ 99,920.00	$ 78,160.00	$ 49,720.00

*4380 x 5 x 20%= 4380 pounds