Unos makes and sells a single product. It takes five pounds of direct materials

Question

 Unos makes and sells a single product. It takes five pounds of  direct materials to make one unit. The number of units expected to be  produced for the next three months appears below:                      Budgeted Production

 July                 23,000 units

 August               14,000 units

 September            26,000 units    The company wants to maintain monthly ending inventories of direct  materials equal to 25% of the next month's production needs. The  cost of direct materials is $2.25 per pound. Left Company is in the  process of preparing a direct materials purchases budget.    Calculate the total cost of direct materials budgeted to be purchased  in August.

Explanation / Answer

Direct materials budgeted to be purchased in August = (August production in units * 5 pounds per unit) + 25% of September production needs - 25% of August production needs

= (14,000 * 5) + (26,000 * 5 * 25%) - (14,000 * 5 * 25%)

= 70,000 + 32,500 - 17,500

= 85,000 pounds

Total cost of direct materials budgeted to be purchased = 85,000 pounds * 2.25 per pound

= 191,250

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