Kelso Company manufactures two products, (1) Regular and (2) Deluxe. The budgete

Question

Kelso Company manufactures two products, (1) Regular and (2) Deluxe. The budgeted units to be produced are as follows: Units of Product 2011 Regular Deluxe Total July 10,000 15,000 25,000 August 6,000 10,000 16,000 September 9,000 14,000 23,000 October 8,000 12,000 20,000 It takes 3 pounds of direct materials to produce the Regular product and 5 pounds of direct materials to produce the Deluxe product. It is the company's policy to maintain an inventory of direct materials on hand at the end of each month equal to 30% of the next month's production needs for the Regular product and 20% of the next month's production needs for the Deluxe product. Direct materials inventory on hand at June 30 were 9,000 pounds for the Regular product and 15,000 pounds for the Deluxe product. The cost per pound of materials is $5 Regular and $7 Deluxe. Instructions Prepare a direct materials budget for Deluxe ONLY for the third quarter of 2008

Explanation / Answer

KELSO COMPANY Direct Materials BudgetDeluxe For the Quarter Ended September 30, 2008 July Units to be produced 15,000 Direct materials per unit 5 Total pounds needed for production 75,000 Add: Desired ending direct materials (pounds) 10,000 Total materials required 85,000 Less: Beginning direct materials (pounds) 15,000 Direct materials purchases 70,000 Cost per pound $7 Total cost of direct materials purchases $490,000 *20% (12,000 5) August 10,000*5 =50,000 + 14,000 =64,000 - 10,000= 54,000* $7 = $378,000
September Total 14,000 * 5 = 70,000 + 12,000 = 82,000 - 14,000 = 68,000 * $7= $476,000 $1,344,000

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