Question

Exercise 20-6 Manufacturing: Direct materials budget LO P1 Rida, Inc., a manufacturer in a seasonal industry, is preparing its direct materials budget for the second quarter. It plans production of 240,000 units in the second quarter and 277,500 units in the third quarter. Raw material inventory is 67,500 pounds at the beginning of the second quarter. Other information follows: Direct materials Each unit requires 0.40 pounds of a key raw material, priced at $190 per pound. The company plans to end each quarter with an ending inventory of materials equal to 50% of next quarter’s budgeted materials requirements. Prepare a direct materials budget for the second quarter.

Answer 1

$15,960,000

Step-by-step explanation:

Material needed for production:

= Units to be produced × Material required per unit

= 240,000 units × 0.40

= 96,000

Budgeted Ending Inventory:

= Units to be produced in third quarter × Material required per unit × 50%

= 277,500 units × 0.40 pounds × 50%

= 55,500

Total material requirements:

= Material needed for production + Budgeted Ending Inventory

= 96,000 + 55,500

= 151,500

Materials to be purchased:

= Total material requirements - Beginning Inventory

= 151,500 - 67,500

= 84,000

Therefore,

Budgeted Cost of Direct material purchases for the second quarter:

= Materials to be purchased × Material Price per pound

= 84,000 × $190

= $15,960,000