A Company makes and sells a single product called a Bik. It takes three yards of

Question

A Company makes and sells a single product called a Bik. It takes three yards of Material A to make one Bik. Budgeted production of Biks for the next three months is as follows: Budgted Biks to be Produced February 15,000 units March 18,500 units April 17,200 units The company wants to maintain monthly ending inventories of Material A equal to 25% of the next month's production needs. The cost of material A is $1.20 per yard. The company is in the process of preparing a direct materials purchases budget. Calculate the total cost of material A budgeted to be purchased in March.

Explanation / Answer

*Assuming there is NO opening inventory of Material A

Month BIK production Opening Inventory Materia A required Closing Inventory Material A purchased (a) (d) b=(a*3) c=(next months b*25%) units=(b+c-a) (units*1.20) February                  15,000                                    -                             45,000                                    13,875       58,875.00    70,650.00 March                  18,500                           13,875                           55,500                                    12,900       54,525.00    65,430.00 April                  17,200                           12,900                           51,600                                              -         38,700.00    46,440.00

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