Question

Becker Bikes manufactures tricycles. The company expects to sell 460 units in May and 590 units in June. Beginning and ending finished goods for May is expected to be 150 and 115 units, respectively. June’s ending finished goods is expected to be 125 units. Each unit requires 3 wheels at a cost of $16 per wheel. Becker requires 20 percent of next month’s material production needs on hand each month. July’s production units is expected to be 560 units.

Compute Becker’s direct materials purchases budget with respect to wheels for May and June.

Answer 1

Solution :

Direct Material Purchases Budget :

	May	June
(a) Units to be produced	425	600
(b) Wheels Required per Unit	3	3
(c) Total Wheels required in production (a * b)	1,275	1,800
(d) Desired Inventory at the end	360	336
(e) Total Material Required (c + d)	1,635	2,136
(f) Opening Direct Material	255*	360
(g) Direct Material to be Purchased (e - f)	1,380	1,776
(h) Cost per Wheel	$ 16	$ 16
(i) Total Cost of Purchases (h * i)	$ 22,080	$ 28,416

Desired Inventory at the end :

May = 1,800 * 20% = 360

June = 560 * 3 * 20% = 336

* Opening of May = 1,275 * 20% = 255

Working :

Units to be produced in May and June :

	May	June
Expected Units to be Sold	460	590
Add : Desired Units at the end	115	125
Total Units Required	575	715
Less : Units at the begining	150	115
Units to be produced	425	600

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