Question

Direct material purchases and budgeted payments
Campbell Manufacturing intends to start business on January 1. Production plans for the first four months of operations are as follows:

January	8,000	units
February	20,000	units
March	28,000	units
April	28,000	units

Each unit requires two pounds of material. The firm would like to end each month with enough raw material to cover 25 percent of the following month’s production needs. Raw material costs $7 per pound. Management pays for 40 percent of purchases in the month of purchase and receives a 10 percent discount for these payments. The remaining purchases are paid in the following month, with no discount available.
a. Prepare a purchases budget for the first quarter of the year in units, in total, and in dollars.
Note: Do not use a negative sign with your answers.

	January	February	March	Quarter
Units produced
Pounds per unit	x 2	x 2	x 2	x 2
Pounds needed
EI in pounds
Total required
Less BI
Pounds to purchase
Cost per pound	x $7	x $7	x $7	x $7
Total cost of RM

b. Determine the budgeted payments for purchases of raw material for each of the first three months of operations and for the quarter in total.

Payments
	January	February	March	Quarter
January purchases
February purchases
March purchases
Total

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Answer 1

A)			January	February	March	April
	a.	Budgeted unit	8000	20000	28000	28000
	b.	Budgeted material (a * 2)	16000	40000	56000	56000
		Each unit requires 2 unit of material
	c.	Closing Inventory (25 % of next month production need	10000	14000	14000
		Romaterial Required	16000	40000	56000
	Add:	Closing Stock	10000	14000	14000
	Less:	Opening Stock	0	-10000	-14000
		Total Purchases	26000	44000	56000
		* $ 7 per unit	182000	308000	392000
			(26000*7)	(44000*7)	(56000*7)
B)		budgeted payments	January	February	March
		Total Purchases	182000	308000	392000
		40% paid in month of purchase	72800	123200	156800
			(182000*0.40)	(308000*0.40)	(392000*0.40)
		Less: 10 % Discount	-7280	-12320	-15680
			(72800*0.10)	(123200*0.10)	(156800*0.10)
		Balance 60 % payment in next month	0	109200	184800
			0	(182000*0.60)	(308000*0.60)
		Total budgeted payments	65520	220080	325920