Question

Ruiz Co. provides the following sales forecast for the next four months: April May June July Sales (units) 680 760 710 800 The company wants to end each month with ending finished goods inventory equal to 20% of next month's forecasted sales. Finished goods inventory on April 1 is 136 units. Assume July's budgeted production is 710 units. In addition, each finished unit requires four pounds (lbs.) of raw materials and the company wants to end each month with raw materials inventory equal to 30% of next month’s production needs. Beginning raw materials inventory for April was 835 pounds. Assume direct materials cost $5 per pound.

Prepare a direct materials budget for April, May, and June. (Round your intermediate calculations and final answers to the nearest whole dollar amount.)

Answer 1

Solution :

Working note 1:

Computation of production budget :

Ruiz company
Production budget
Particulars	April	May	June
Next month budgeted sales	760 units	710 units	800 units
Ratio of inventory to future sales	20%	20%	20%
Budgeted ending inventory (A)	152 units	142 units	160 units
Budgeted unit sales for month (B)	680 units	760 units	710 units
Required units of available production (C )	832 units	902 units	870 units
Beginning inventory (D)	(136 units)	(152 units)	(142 units )
Units to be produced (E) = C - D	696 units	750 units	728 units

Computation of direct materials budget

Ruiz company
Direct materials budget
Particulars	April	May	June
Budgeted production	696 units	750 units	728 units
Raw material required per unit	4 pounds	4 pounds	4 pounds
Raw materials required for production (A)	2,784 pounds (696 units* 4 pounds)	3,000 pounds (750 units * 4 pounds)	2,912 pounds (728 units *4 pounds)
Budgeted ending inventory (30% of next month production requirements) (B)	900 pounds (3,000 pounds *30%)	874 pounds (2,912 pounds *30%)	852 units (710 units*4 pounds *30%)
Total material requirements ( C)= A +B	3,684 pounds	3,874 pounds	3,764 pounds
Beginning inventory (D)	(835 pounds)	(900 pounds)	(874 pounds)
Raw material to be purchased (E) = C –D	2,849 pounds	2,974 pounds	2,890 pounds
Cost per lb (F)	$ 5.00	$ 5.00	$ 5.00
Total budgeted materials cost (G) = E *F	$ 14,245 (2,849 pounds*$ 5.00)	$ 14,870 (2,974 pounds*$ 5.00)	$ 14,450 (2,890 pounds*$ 5.00)