Ramos Co. provides the
following sales forecast and production budget for the next four
months:
April | May | June | July | |||||
Sales (units) | 570 | 650 | 600 | 670 | ||||
Budgeted production (units) | 510 | 640 | 610 | 610 | ||||
The company plans for finished goods inventory of 190 units at the
end of June. In addition, each finished unit requires 5 pounds of
direct materials and the company wants to end each month with
direct materials inventory equal to 30% of next month’s production
needs. Beginning direct materials inventory for April was 765
pounds. Direct materials cost $2 per pound. Each finished unit
requires 0.30 hours of direct labor at the rate of $23 per hour.
The company budgets variable overhead at the rate of $27 per direct
labor hour and budgets fixed overhead of $8,700 per month.
Exercise 20-8 Manufacturing: Direct materials budget LO P1
Prepare a direct materials budget for April, May, and June.
Answer Direct Material Budget for the month of April, May and June.
Direct Material Budget | ||||
For the Month of April, May and June | ||||
April | May | June | Total | |
Budget Units to be produced | 510 | 640 | 610 | 1760 |
Direct material needed per unit | 5 | 5 | 5 | 5 |
Materials required for production | 2550 | 3200 | 3050 | 8800 |
Add: desired ending direct materials | 960 | 915 | 915 | 915 |
Total material required | 3510 | 4115 | 3965 | 9715 |
Less: beginning direct materials | 765 | 960 | 915 | 765 |
Direct material purchase | 2745 | 3155 | 3050 | 8950 |
Costs per pound | $ 2 | $ 2 | $ 2 | $ 2 |
Total Costs of direct materials purchase | $ 5,490 | $ 6,310 | $ 6,100 | $ 17,900 |
Workings
Requirement for July
July | |
Budget Units to be produced | 610 |
Direct material needed per unit | 5 |
Materials required for production | 3050 |
Calculation of material at the end of each month
Material At the end of | NEXT MONTH REQUIREMENT | Ending Units | |||
April | 30% | x | 3200 | = | 960 |
May | 30% | x | 3050 | = | 915 |
June | 30% | x | 3050 | = | 115 |
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