Question

Direct Materials Purchases Budget

Langer Company produces plastic items, including plastic housings for humidifiers. Each housing requires about 21 ounces of plastic costing $0.1 per ounce. Langer molds the plastic into the proper shape. Langer has budgeted production of the housings for the next 4 months as follows:

	Units
July	3,500
August	4,400
September	4,900
October	6,300

Inventory policy requires that sufficient plastic be in ending monthly inventory to satisfy 30% of the following month's production needs. The inventory of plastic at the beginning of July equals exactly the amount needed to satisfy the inventory policy.

Required:

Prepare a direct materials purchases budget for July, August, and September, showing purchases in units and in dollars for each month and in total. If required, round the total purchase cost to nearest whole value.

Langer Company
Direct Materials Purchases Budget
For July, August and September
	July	August	September	Total
Units to be produced
Direct materials per unit (ounces)
Production needs
Desired ending inventory (ounces)
Total needs
Less: Beginning inventory
Direct materials to be purchased (ounces)
Cost per ounce	$0.1	$0.1	$0.1	$0.1
Total purchase cost

Answer 1

Ans. 1	Langer Company
	Direct Materials Purchases Budget
	For July, August and September
	Particulars	July	August	September	Total
	Units to be produced	3500	4400	4900	12800
	Direct materials per unit (ounces)	21	21	21	21
	Production needs	73500	92400	102900	268800
	Desired ending inventory (ounces)	27720	30870	39690	98280
	Total needs	101220	123270	142590	367080
	Less: Beginning inventory	-22050	-27720	-30870	-80640
	Direct materials to be purchased (ounces)	79170	95550	111720	286440
	Cost per ounce	$0.10	$0.10	$0.10	$0.10
	Total purchase cost	$7,917	$9,555	$11,172	$28,644
	Working Notes:
	Calculation of Production needs for October :
		October
	Units to be produced	6300
	Direct materials per unit (ounces)	21
	Production needs	132300
	*Calculations for Ending inventory:
Months
July	92,400 * 30%	27720
August	102,900 * 30%	30870
September	132,300 * 30%	39690
	*Calculations for Beginning inventory:
Months
July	Ending inventory of June (73,500*30%)	22050
August	Ending inventory of July	27720
September	Ending inventory of August	30870