Question

Exercise 20-4 Manufacturing: Direct materials budget LO P1

Zira Co. reports the following production budget for the next four months.

	April		May		June		July
Production (units)	624		665		657		637

Each finished unit requires five pounds of raw materials and the company wants to end each month with raw materials inventory equal to 20% of next month’s production needs. Beginning raw materials inventory for April was 624 pounds. Assume direct materials cost $6 per pound.

Prepare a direct materials budget for April, May, and June. (Round your intermediate calculations and final answers to the nearest whole dollar amount.)

Answer 1

Direct materials budget

	April	May	June
Units to be produced (i)	624	665	657
Direct materials per unit (ii)	5 pounds	5 pounds	5 pounds
Total pounds needed for production (iii) = (i) x (ii)	3,120	3,325	3,285
Desired ending direct materials pounds (iv)	3,325 x 20% = 665	3,285 x 20% = 657	3,185 x 20% = 637
Total materials required (iii) + (iv)	3,785	3,982	3,922
Beginning direct materials pounds	- 624	- 665	- 657
Direct material purchases	3,161	3,317	3,265
Cost per pound	$6	$6	$6
Total cost of direct material purchases	3,161 x 6 =$18,966	3,317 x 6 = $19,902	3,265 x 6 = $19,590

July production = 637 units

Direct materials per unit = 5 pounds

Total pounds needed for production in July = July production x Direct materials per unit

= 637 x 5

= 3,185

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