Left Company makes and sells a single product. It takes five pounds of direct ma

Question

 Left Company 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

Total cost of direct material budgeted to be purchased in august :

August Production units 14000 Direct material per unit 5 Raw material needed for production 70000 Add: Desired ending inventory of raw material (26000*5*25%) 32500 Total 102500 Less: Beginning inventory (70000*25%) -17500 Direct material purchase 85000 Rate per pound 2.25 Direct material purchase cost 191250

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