Question

Black diamond company produces snow skis. Each ski requires 3 pounds of carbon fiber. The company’s management predicts that 6,300 skis and 7,300 pounds of carbon fiber will be in inventory on June 30 of the current year and that 163,000 skis will be sold during the next (third) quarter. A set of two skis sells for $430. Management wants to end the third quaerywe with 5,800 skis and 5,300 pounds of carbon fiber in inventory. Carbon fiber can be purchased for $12 per pound. Each ski requires 0.4 hours of direct labor at $17 per hour. Variable overhead is applied at the rate of $8 per direct labor hour. The company budgets fixed overhead of $1,795,000 for the quarter.

Prepare the third quarter direct materials (carbon fiber) budget; include the dollar cost of purchases.

Answer 1

FIrst we will have to calculate the production budget of snow skis for the third quarter :

Expected sales	163,000
(+) Desired ending inventory	5,800
Total units required	168,800
(-) Opening inventory	( 6,300 )
Units to be produced	162,500

Note : Ending inventory on June 30 will become the opening inventory for the third quarter.

Direct materials ( carbon fiber ) budget for third quarter :

Units of snow skis to be produced	162,500
(x) Direct materials needed per unit of ski ( pounds )	3
Direct materials needed for production ( pounds )	487,500
(+) Desired ending inventory ( pounds )	5,300
Total direct materials needed ( pounds )	492,800
(-) Opening inventory ( pounds )	( 7,300 )
Direct materials to be purchased ( pounds )	485,500
(x) Rate per pound	$12
Dollard cost of purchase	$5,826,000

Note : Ending inventory on June 30 will become the opening inventory for the third quarter.