Answer:
Purchases= production + desired ending inventory - beginning inventory
Explanation:
Giving the following information:
Two pounds of raw materials are needed to produce one product.
The desired ending balance of raw materials is 10% of the next month's production needs.
The beginning inventory of raw materials is 4,000 pounds.
The raw material cost per unit is $0.50 per pound.
To calculate the direct material purchase required for a given month, we need the production for each month. I will provide the formula and a small example to guide an answer.
To calculate the purchase required, we need to use the following formula:
Purchases= production + desired ending inventory - beginning inventory
For example:
Production:
January= 5,000 units
February= 4,500 units
Direct material purchases January:
Production= 5,000*2= 10,000
Desired ending inventory= (4,500*2)*0.1= 900
Beginning inventory= (4,000)
Total purchase in pounds= 6,900
Total direct material cost= 6,900*0.5= $3,450