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:

                  Budgeted Units to be Produced            
September                 31,900 units
October                   22,400 units
November                  26,100 units
December                  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.

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

Answer 1

Answer)

Calculation of budgeted direct material cost for the month of November

Quantity of Raw material required to produce 26,100 units in the month of November

Units budgeted to be produced in the month of November = 26,100 units

Material required per unit of output = 5 pounds

Total quantity material required to meet budgeted production for the month of November = 26,100 units X 5 pound per unit

                                                   = 130,500 pounds   

Therefore the company requires 130,500 pounds of material to produce 26,100 units in the month of November

Quantity of Raw material required to produce 34,600 units in the month of December

Units budgeted to be produced in the month of December = 34,600 units

Material required per unit of output = 5 pounds

Total quantity material required to meet budgeted production for the month of December = 34,600 units X 5 pound per unit

                                                   = 173,000 pounds   

Therefore the company requires 173,000 pounds of material to produce 34,600 units in the month of December.

It is given in the question that company maintains monthly ending inventory levels equal to 24% of the following month’s production needs. Therefore out of the total raw material requirement for the month of November the company will purchase 24% in the month of October and balance 76% in the month of November.

Similarly, the out of the total requirement for the month of December the company will purchase 24% in the month of November and balance 76% in the month of December.

Total Quantity to be purchased in the month of November

          = (76% of total Quantity required to produce budgeted production of November + 24% of total quantity required to produce budgeted production of December)

         = (130,500 pounds X 76%) + (34,600 pounds X 24%)

        = 99,180 pounds + 41,520 pounds

         = 140,700 pounds

Therefore the company will purchase 140,700 units during the month of November.

Total budgeted material cost for November = (Units budgeted to be purchased in November X Material cost per pound)

                                                 = 140,700 pounds X $ 2.75 per pound

                                                 = $ 386,925

Therefore total cost of direct material budgeted to be produced in the month of November is $ 386,925.