Question

Dodd Company makes and sells a single product. Each finished unit requires
four pounds of direct materials. The budgeted units to be produced for the
third quarter of the current year are given below:

                  Budgeted Units to be Produced            
July                      26,000 units                          
August                    21,000 units                          
September                 33,000 units

The company wants to maintain monthly ending inventories of direct materials
equal to 35% of the next month's production needs. The cost of the direct
materials is $1.75 per pound.

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

Answer 1

The company wants to maintain monthly ending inventories of direct materials equal to 35% of the next month's production needs

Therefore, In the month of June ending inventory is 9100 Units (26,000 Units * 35% ). That becomes Opening Inventory of July Month.

Budgeted Units to be Produced in the month of July is 26,000 Units, Out of these we have opening inventory of 9100 Units.

Further, We need to maintain 35% of the next month's production as Ending Inventory. i.e 7350 Units (21,000 Units * 35% )

Therefore, Budgeted Direct material to be purchased in the month of July will be as follow

Particulars	Number of Units
Budgeted Units to be Produced	26000
Less: opening Inventory	9100
Add: Need to maintain Ending Inventory	7350
Units of Direct Material to be Purchase	24250

Each finished unit requires four pounds of direct materials.

Therefore, Cost of Budgeted Direct Material will be 97000 Pounds. (24250*4)

The cost of the direct materials is $1.75 per pound.

Therefore, Cost of Budgeted Direct Material will be $1,69,750. (97000* $ 1.75).