Final answer:
To calculate the direct materials purchases budget for wheels for May and June, we determine the wheels needed for production and inventory. We also factor in the inventory required for the following month. The resulting purchases budget is $18,675 for May and $31,500 for June.
Step-by-step explanation:
To compute Becker's direct materials purchases budget for wheels for May and June, we need to calculate how many wheels are required for production and adjust for the inventory requirements. Becker Bikes requires 3 wheels per tricycle. For May, the company expects to sell 450 units, hence:
- Wheels needed for units sold = 450 units * 3 wheels/unit = 1350 wheels
- Ending inventory for May = 110 units * 3 wheels/unit = 330 wheels
- Beginning inventory for May = 145 units * 3 wheels/unit = 435 wheels
- Total wheels required for May = (Wheels needed + Ending inventory) - Beginning inventory = (1350 + 330) - 435 = 1245 wheels
For June, they expect to sell 580 units, and also need to maintain inventory:
- Wheels needed for units sold = 580 units * 3 wheels/unit = 1740 wheels
- Ending inventory for June = 120 units * 3 wheels/unit = 360 wheels
- Beginning inventory for June = May's ending inventory = 330 wheels
- Becker requires 20% of next month's production needs (July) on hand each month:
- July's wheels needed = 550 units * 3 wheels/unit = 1650 wheels
- 20% of July's wheels = 0.20 * 1650 wheels = 330 wheels
- Total wheels required for June = (Wheels needed + Ending inventory + Next month's required inventory) - Beginning inventory for June = (1740 + 360 + 330) - 330 = 2100 wheels
The cost of wheels is $15 per wheel, so:
- Total cost for May = 1245 wheels * $15/wheel = $18,675
- Total cost for June = 2100 wheels * $15/wheel = $31,500
Becker's purchases budget for wheels is $18,675 for May and $31,500 for June.