3. Schedule 3: Direct materials purchases budget (Assumes May sales equal April sales in units)
January February
Part K29 Part C30 Part K29 Part C30
Units produced............... 11,200 11,200 11,000 11,000
Dir. mat. per unit............ × 2 × 3 × 2 × 3
Production needs...... 22,400 33,600 22,000 33,000
Desired EI......................... 6,600 9,900 8,160 12,240
Total needed............... 29,000 43,500 30,160 45,240
Less: BI............................. 6,720 10,080 6,600 9,900
Dir. mat. to purchase 22,280 33,420 23,560 35,340
Cost per unit................... × $4 × $7 × $4 × $7
Total purchase cost $ 89,120 $233,940 $ 94,240 $247,380
Where does the $6600 come from? Not sure how to calculate the desired ending inventory.
Generally, a fixed portion of the succeding periods production is maintained as ending inventory.
Now, let us take some inputs from the data provided:
| S.No | Particulars | Part K29 | Part C30 |
| 1 | Production Needs - January | 22,400 | 33,600 |
| 2 | Ending Inventory - December (Opening Inv of January) | 6,720 | 10,080 |
| 3 | Percentage | 30% | 30% |
| 4 | Production Needs - February | 22,000 | 33,000 |
| 5 | Desired Ending Inventory - January (3*4) | 6,600 | 9,900 |
So, we can deduce that Desired ending inventory is 30% of the Production needs of the next month.
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