Question

Flagstaff Company has budgeted production units of 8,500 for July and 8,700 for August. The direct materials requirement per unit is 2 ounces (oz.). The company has determined that it wants to have safety stock of direct materials on hand at the end of each month to complete 20% of the units budgeted in the following month. There was 3,400 ounces of direct material in inventory at the start of July. The total amount of direct materials in ounces, to be purchased in July is:

Answer 1

17,080 ounces.

Step-by-step explanation:

Given that,

Budgeted production = 8,500

Raw material required per unit = 2 ounces

Opening inventory = 3,400

Direct material to be purchased:

= (Budgeted production × Raw material required per unit) + Closing inventory - Opening inventory

= (8,500 × 2 ounces) + (20% × 8,700 × 2) - 3,400

= 17,000 + 3,480 - 3,400

= 17,080 ounces.