Question

Daybook Inc. budgeted production of 403,500 personal journals in 20Y6. Paper is required to produce a journal. Assume six square yards of paper are required for each journal. The estimated January 1, 20Y6, paper inventory is 40,400 square yards. The desired December 31, 20Y6, paper inventory is 38,900 square yards.

If paper costs $0.40 per square yard, determine the direct materials purchases budget for 20Y6.

Answer 1

Formula to Calculate Purchase units is:

Purchase units = Units required for production + Desired Ending Inventory - Beginning Inventory

Direct Materials Purchase Budget

Particulars	Amount
Units to be Produced	403,500 Paper Journals
Paper needed per Personal Journal	6 Square yards
Total Papers needed for Production of Personal Journals (403,500*6)	2,421,000 Square yards
Add: Desired Ending inventory of Paper	38,900 Square yards
Less: Beginning Inventory of Paper	40,400 Square yards
Papers needed to be Purchased	2,419,500 Square yards
Purchase price per Square yard of Paper	$0.40
Purchase Cost of Paper (2,419,500*0.40)	$967,800