Question

Perine Company has 2,392 pounds of raw materials in its December 31, 2019, ending inventory. Required production for January and February of 2020 are 4,600 and 6,000 units, respectively. 2 pounds of raw materials are needed for each unit, and the estimated cost per pound is $9. Management desires an ending inventory equal to 26% of next month’s materials requirements.

Prepare the direct materials budget for January.

Answer 1

Instructions are below.

Step-by-step explanation:

Giving the following information:

Beginning inventory= 2,392 pounds

Production:

January= 4,600 units

February= 6,000 units

2 pounds of raw materials are needed for each unit

The estimated cost per pound= $9.

Management desires an ending inventory equal to 26% of next month’s materials requirements.

To calculate the purchases for January, we need to use the following formula:

Purchases= sales + desired ending inventory - beginning inventory

First, we will determine the pounds needed for January.

Budgeted Direct material:

Production= 4,600*2= 9,200 pounds

Ending inventory= (6,000*2)*0.26= 3,120 punds

Beginning inventory= (2,392) pounds

Total= 9,928 pounds

Total direct material cost= 9,928*9= $89,352