Question 3:
Brown Company manufactures wood tables. Each table requires 15 board-feet of wood. Wood costs $6 per board foot. The company had 2,000 board feet wood on hand at the beginning of July and required enough wood inventory to be on hand to meet 20% of the following month’s production requirements.
July |
August |
September |
Quarter |
|
Required Production |
5,000 |
7,000 |
10,000 |
22,000 |
The company expects to produce 8,000 units in October.
Required:
Prepare a materials purchases budget for the quarter. Provide both the number of board feet, and dollar value of inventory to be purchased.
Direct material purchase budget
July | August | September | Quarter | |
Required production | 5000 | 7000 | 10000 | 22000 |
Raw material per unit | 15 | 15 | 15 | 15 |
Raw material needed for production | 75000 | 105000 | 150000 | 330000 |
Add: Desired ending inventory | 21000 | 30000 | 24000 | 24000 |
Total | 96000 | 135000 | 174000 | 354000 |
Less: Beginning inventory | -2000 | -21000 | -30000 | -2000 |
Direct material purchase | 94000 | 114000 | 144000 | 352000 |
Cost per foot | 6 | 6 | 6 | 6 |
Direct material purchase cost | 564000 | 684000 | 864000 | 2112000 |
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