Question

Orr Company makes and sells a single product called a Bik. It takes
six yards of Material A to make one Bik. Budgeted production of Biks
for the next three months is as follows:

                  Budgeted Biks to be Produced            
February                  23,000 units
March                     19,000 units
April                     28,000 units

The company wants to maintain monthly ending inventories of Material A
that are equal to 39% of the following month's production needs. The
cost of Material A is $1.20 per yard. The company is in the process of
preparing a direct materials purchases budget.

Calculate the total cost of Material A to be purchased in February.

Answer 1

Step-1:Calculation of monthly production needs of materials
Month			February	March	April
Budgeted production			23,000	19,000	28,000
Materials per unit required			6	6	6
Total Materials Required			1,38,000	1,14,000	1,68,000
Step-2:Calculation of ending inventory of each month
Month				January	February	March
Next Month's production needs of materials				1,38,000	1,14,000	1,68,000
Ending Inventory @ 39%				53,820	44,460	65,520
Step-3:Calculation of Cost of Material A
				February	March	April
Materials required for production				1,38,000	1,14,000	1,68,000
Add: Ending Inventory				44,460	65,520
Less:Beginning inventory				53,820	44,460
Materials required to be purchased				1,28,640	1,35,060
Material cost per unit				$               1.20	$               1.20
Total cost of Material purchased				$       1,54,368	$       1,62,072
Thus,
Total cost of Material A to be purchased in February					$ 1,54,368