Question

ABC Company makes and sells a single product. It requires
2.5 pounds of direct materials to produce one unit of this
product. Budgeted units to be produced for the next four
months is given below:

                  Budgeted Units to be Produced            
July                      35,000 units
August                    31,000 units
September                 11,000 units
October                   34,000 units

The company wants to maintain monthly ending inventories of
direct materials equal to 36% of the next month's production
needs. The cost of direct materials is $9 per pound.

Calculate the total cost of direct materials to be purchased
in July.

Answer 1

Ans.	ABC COMPANY
	Direct Materials Budget
	For the Month of July
	Particulars	July
	Budgeted production (units)	35000
	(X) Materials requirement per unit	2.5
	Materials needed for production	87500
	Add: Budgeted ending inventory	27900
	Total materials requirements	115400
	Less: Budgeted beginning inventory	-31500
	Materials to be purchased	83900
	(X) Direct materials per unit	$9.00
	Total cost of direct materials to be purchased	$755,100
	*Calculations of materials needed for production for the month of August:
	Particulars	August
	Budgeted production (units)	31000
	(X) Materials requirement per unit	2.5
	Materials needed for production	77500
	*Ending inventory of July = 36% of materials needed for August
	77,500 * 36%
	27900
	*Beginning inventory of July = Ending inventory of June = 10% of materials needed for July
	87,500 * 36%
	31500