Question

In: Economics

What is the total amount to be budgeted in pounds for direct materials to be purchased...

What is the total amount to be budgeted in pounds for direct materials to be purchased for the month?

38,280

37,680

38,880

40,200

Solutions

Expert Solution

Option 3 - 38,880

Explanation :

Production estimation : 870 boxes

Each box requires 44 pounds of clax mix and a quarter hour of direct labor.

Company has 3900 pounds of clay mix in the beginning inventory and wants to have 4500 pounds in ending inventory.

The formula for computation of the purchase is :

Purchase in units = Usage + Desired ending material inventory units - Beginning inventory units.

So, total amount to be budgeted in pounds for direct materials to be purchased for the month :

(870) (44) + 4500 - 3900 = 38880

Direct material budget

When the level of production has been computed, a direct material budget should be constructed to show how much material will be required for production and how much material must be purchased to meet this production requirement. The purchase will depend on both expected use of materials and inventory levels. The direct matetial budget is usually accompanied by a computation of expected cash payments for materials.

The purpose of direct materials budget is to determine the quantity of raw materials to be purchased each period to fulfill the production needs and to provide for adequate inventories.

Rahul Sunny answered 2 years ago
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