Question

XYZ co. produces a specialized product, the lamp XS.The follwoing information relates to the company's expected sales, standards fro direct material and inventory

Month	Anticipated sales
Jnauary	1,000 units
February	1,200 units
March	1,400 units
April	1,100 units

Direct materials:

Direct materials
Direct material required for one unit lamp XS	2 Kilograms
Direct material cost	$12/kilogram

Inventory policies:

Ending inventory of the Lamp XS : 100 units plus 15% of next month's anticipated sales ending inventory of direct materials:$500 plus 10% of the direct materials cost of next month's production requirements.

What is the budgeted cost of the direct materials purchases in february ?

Answer 1

• All working forms part of the answer
• Working for all the months are given, make sure to go through ‘February’ column for answer figure.
• For finding out the budgeted cost of direct material purchased, we first need to prepare production budget to see how many units are required to produced.

Working #1: Production budget
Working		Jan	Feb	Mar	April
A	Budgeted Sales unit	1,000	1,200	1,400	1,100
B = 100 + (15% of A of next month)	Add: Desired ending inventory of Lamp	280	310	265	100
C = A + B	Total needs	1,280	1,510	1,665	1,200
D	Less: Beginning inventory of Lamps	-	280	310	265
E = C - D	Units to be produced	1,280	1,230	1,355	935

• On the basis of no. of units to be produced, we will calculate no. of ‘kgs’ required and purchased.

Working #2: Direct Material Purchase Budget
Working		Jan	Feb	Mar	April
A	Units to be produced (kg)	1,280	1,230	1,355	935
B	Raw material required per unit (kg)	2	2	2	2
C = A x B	Total requirement (kg)	2,560	2,460	2,710	1,870
D = 500 + (10% of 'C' of next month)	Add: Desired ending Inventory of raw material (kg)	746	771	687	500
E = C+D	Total needs (kg)	3,306	3,231	3,397	2,370
F	Less: Beginning Inventory of raw material (kg)	-	746	771	687
G = E - F	raw material to be purchased (kg)	3,306	2,485	2,626	1,683
H	Cost of raw material per kg	$                                 12.00	$                                               12.00	$                 12.00	$                 12.00
I = G x H	Total budgeted cost of direct material purchases	$                         39,672.00	$                                       29,820.00 [=ANSWER]	$         31,512.00	$         20,196.00

• Since we are only concerned with the MONTH OF FEBRUARY, and only budgeted cost of direct material purchase cost of February is asked, the answer = $ 29,820.