Question

Jordan Company makes and sells a single product. It takes five pounds of direct materials to produce one unit of this product. The budgeted units to be produced for the next four months is given below: September October November December Budgeted Units to be produced 31,900 units 22,400 units 26,100 units 34,600 units Jordan Company wants to maintain monthly ending inventories of direct materials that are equal to 24% of the following month's production needs. The cost of direct materials is $2.75 per pound. Assume Jordan Company pays for 40% of a month's purchase of direct materials in the month of purchase and the other 60% is paid in the following month. Calculate the amount of budgeted cash payments for direct materials in October

Answer 1

Please find below table useful to compute desired results: -

A BC September October 31900 22400 1 Schedule of Raw materials purchases 2 Required production (units) 3 Raw material required to produce one unit 4 Production needs 5 Add: desired ending inventory of raw materials 6 Total needs 7 Less: Beginning Inventory of raw materials 8 Raw material to be purchased 9 Cost of raw material per pound 10 Cost of raw material to be purchased 11 12 Schedule of expected cash payments 13 September purchases=60% 14 October purchases=40% 15 Total Cash payments for direct materials =B2*B3 26880 =B4+B5 38280 =B6-B7 2.75 =B8*B9 =C2*C3 31320 =C4+C5 26880 =C6-C7 2.75 =C8*C9 I=B10*0.6 =C10*0.4 =B13+B14

End result would be as follows: -

September October 31900 224001 А 1 Schedule of Raw materials purchases 2 Required production (units) 3 Raw material required to produce one unit 4 Production needs 5 Add: desired ending inventory of raw materials 6 Total needs 7 Less: Beginning Inventory of raw materials 8 Raw material to be purchased 9 Cost of raw material per pound 10 Cost of raw material to be purchased 11 12 Schedule of expected cash payments 13 September purchases=60% 14 October purchases=40% 15 Total Cash payments for direct materials 159500 112000 26880 313201 1863801 1433201 38280 268801 148100 1164401 2.75 2.75 407275 320210 244365 128084 372449