Question

Question 1 (40 marks) Four grams of copper are need for each water bottle. The cost of copper is $2 per gram. Budgeted production of water bottles is given below by quarters for Year 2 and for the first quarter of Year 3: Year 2 First Second Third Fourth Budgeted production in bottles 120,000 160,000 260,000 180,000 Year 3 First 180,000 Copper is a usual ingredient and it is necessary to carry large inventories as a safety against stock-outs. For this reason, the inventory of copper at the end of a quarter must be of the following quarter's production needs. Some 100,000 grams of copper will be on hand to start the first quarter of Year 2. Required: Prepare a direct materials budget for copper by quarter and in total, for Year 2.

Answer 1

	Year 2				Total
	First	Second	Third	Fourth
Budgeted production in bottles	120000	160000	260000	180000
material required per bottle	4	4	4	4
Total material required for production(a*b)	480000	640000	1040000	720000
Add:Desired ending raw material inventory	128000 [640000*20%]	208000 [1040000*20%]	144000 [720000*20%]	144000 [720000*20%]
Total required units	608000	848000	1184000	864000
less:Beginning raw material inventory	-100000	-128000	-208000	-144000
Material needs to be purchased	508000	720000	976000	720000
material cost per unit	2	2	2	2
Total cost of material purchased	1016000	1440000	1952000	1440000	5,848,000

**Following month production requirement in year 3:180000*4=720000