Question

1. The budgeted selling price per unit is $60. Budgeted unit sales for June, July, August, and September are 8,900, 20,000, 22,000, and 23,000 units, respectively. All sales are on credit.
2. Forty percent of credit sales are collected in the month of the sale and 60% in the following month.
3. The ending finished goods inventory equals 20% of the following month’s unit sales.
4. The ending raw materials inventory equals 10% of the following month’s raw materials production needs. Each unit of finished goods requires 5 pounds of raw materials. The raw materials cost $2.50 per pound.
5. Thirty percent of raw materials purchases are paid for in the month of purchase and 70% in the following month.
6. The direct labor wage rate is $13 per hour. Each unit of finished goods requires two direct labor-hours.
7. The variable selling and administrative expense per unit sold is $1.50. The fixed selling and administrative expense per month is $70,000.

If 111,000 pounds of raw materials are needed to meet production in August, what is the estimated cost of raw materials purchases for July?

Answer 1

Estimated Raw material purchases of July:
Production units:
			July	Aug
Sales units			20000	22000
Add: Ending inventory			4400	4600
Total Needs			24400	26600
Less: beginning Inventory			4000	4400
Budgeted production units			20400	22200
RM required per unit			5	5
Total Raw material requirement			102000	111000
Add: Ending inventory of RM			11100
Total needs			113100
Less: Beginning Inventory of RM			10200
Budgeted Purchase units			102900
Cost per pound			2.5
Budgeted Purchase cost in $			257250