Question

Selected information from the direct materials budget of Perry Inc. is provided here:

First Second Third Fourth
Required production in units of finished goods 15,000 12,500 7,500 15,000
Required production in units of finished goods 4 4 4 4
Units of raw materials needed to meet production 60,000 50,000 30,000 60,000
Desired units of ending raw materials inventory 24,000
Total units of raw materials needed
Units of beginning raw materials inventory 16,000
Units of raw materials to be purchased
Unit cost of raw materials $5 $5 $5 $5
Cost of raw materials to be purchased

Perry, Inc. desires to maintain the ending inventory of raw materials at 40 percent of the next quarter's raw material needs. What is the cost of raw materials to be purchased in the first quarter?

Answer 1

Purchase of raw material budget for first quarter = $320,000

Step-by-step explanation:

Given ;

Usage budget = $60,000

Opening inventory = $16,000

Rate = 40%

Purchase of raw material budget for first quarter = $50,000

To calculate the purchase of raw material budget, we use this method

Purchase of raw material budget = usage budget + closing inventory - opening inventory

But we first need to find the raw material closing inventory as;

Closing inventory for raw material = rate × Raw usage budget for second quarter

Closing inventory for raw material= 40/100% × $50,000

Closing inventory for raw material= $20,000

Purchase of raw material budget for first quarter = $60,000 + $20,000 - $16,000

Purchase of raw material budget for first quarter = 64,000 units

Purchase of raw material budget for first quarter = 64,000 units × $5/unit

Purchase of raw material budget for first quarter = $320,000

Answer 2

$320,000

Step-by-step explanation:

The raw material purchase budget is determined by adjusted the raw material usage budget for the opening inventory and closing inventory budget

Raw material purchase budget = usage budget + closing inventory - opening inventory

Raw material closing inventory = 40% × Raw usage budget for second quarter

= 40% × 50,000 = 20,000

Raw material purchase budget for first quarter = 60,000 + 20,000 - 16,000

= 64,000 units

Raw material purchase budget =64,000 units × $5/unit

= $320,000