Question

Lubriderm Corporation has the following budgeted unit sales for the next six-month period: Month June July August September October November Unit Sales 90,000 120,000 210,000 150,000 180,000 120,000 There were 30,000 units of finished goods in inventory at the beginning of June. Plans are to have an inventory of finished products that equal 20% of the unit sales for the next month. Five pounds of materials are required for each unit produced. Each pound of material costs $8 in June, $9 in July and $10 in August. Inventory levels for materials are equal to 30% of the needs for the next month. Materials inventory on June 1 was 15,000 pounds. a. Required: Prepare a Production Budgets in units for July and August. b. Prepare a Direct Material Usage Budget for July and August. c. Prepare a Direct Material Purchases Budget for July and August.

Answer 1

1 Production Budget (in units) Month Budgeted Sales Add: Closing stock Sub-Total Less: Opening Stock Budgeted Production June 90000 24000 114000 30000 84000 July 120000 42000 162000 24000 138000 August 210000 30000 240000 42000 198000 June 84000 July 138000 5 5 2 Direct Material Usage Month Direct material usage Direct Material required per unit Total Direct material required Add: Required closing stock Sub-Total Add: Required opening stock Budgeted Direct Material usage August 198000 5 990000 46800 1036800 690000 59400 420000 41400 461400 15000 446400 749400 41400 708000 59400 9774001 3 Direct Material Purchase Month Direct material usage Direct Material required per unit Total Direct material required Add: Required closing stock Sub-Total Add: Required opening stock Budgeted Direct Material usage Direct Material price per pound Cost of Material Purchase June July August 84000 708000 977400 5 5 5 420000 690000 990000 41400 59400 46800 461400 749400 1036800 15000 41400 59400 446400 708000 977400 $ 8 $ 9 $ 10 $ 35,71,200 $ 63,72,000 $ 97,74,000

*Closing stock = 20% off next months sale.

* Opening stock = Previous months closing stock.

* 1 unit = 5 pounds of material,

* Direct material usage, closing = 30% of next month usage.

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