Question

Soster makes and sells candles. Each candle uses 0.6 kilograms of wax. Budgeted production of candles in units for the next five months is as follows:

	March	April	May	June	July
Budgeted Production	20,000	17,000	18,000	15,000	16,000

The company wants to maintain monthly ending inventories of wax equal to 25% of the following month's budgeted production needs. There were 1,300 kilograms of wax on hand on March 31 and 900 kilograms at March 1. The cost of wax is $0.75 per kilogram. Soster pays 45% of merchandise purchases in the month purchased and 55% in the following month.

Instructions:  

a. Prepare a direct materials purchases budget for the April.

b. Determine how much cash will be paid for purchases during April?

Answer 1

a. Prepare a direct materials purchases budget for the April:

	April	March
Budgeted Production	17,000	20,000
wax required per unit	0.6 kilograms	0.6
Wax required for budgeted production	10,200	12,000
Add: Ending inventory required (18,000 x 0.6 x 25%)	2,700	1,300
Less: Beginning inventory	(1,300)	(900)
Total wax to be purchased	11,600	12,400
Cost of wax per kilogram	$0.75	$0.75
Direct materials purchases budget	$8,700	$9,300

b. Determine how much cash will be paid for purchases during April:

	April
Cash paid for purchase in April ($8,700 x 45%)	$3,915
Cash paid for purchase in March ($9,300 x 55%)	$5,115
Cash paid during April	$9,030