Tall Oak Inc produces rulers from plastic resin Tall Oak has

Tall Oak, Inc produces rulers from plastic resin. Tall Oak has estimated production and sales of rulers in units for the next 2 months as:

                                             May               June

Estimated productiuon:        42,000        48,000

Estimated sales:                  50,000        36,000

Each ruler requires 0.25 pounds of resin. The cost of resin is $4.50 per pound. Tall Oaks wants to have 20% of the next months materials requirements on hand at the end of each month.

Prepare a direct materials purchases budget for the month of May.

Solution

direct materials purchases budget for the month of May

the estimated production in the month of May is = 42000 units

quantity of resin required for producing 1 plastic ruler = .25 pounds

=> quantity of resin required for producing 42000 plastic ruler = .25 * 42000 = 10500 pounds

now we are given that Tall Oaks wants to have 20% of the next months materials requirements on hand at the end of each month

so at the end of the month of april Tall OAK will need = 20% of (42000*.25) pounds of resin = .2*(42000*.25) = 2100 pounds

now we\'ll subtract the 2100 pounds from 10500 pounds as we have already included it in the 10500 pounds required in the month of may

and at the end of the month of may we\'ll need the 20% of material form the next month that is june as well

=> 20% of (48000*.25) = 2400 pounds

so the total inventory that the Tall OAK company need to keep for the month of may is = 10500 - 2100 + 2400 = 10800 pounds

and the cost of 1 pound of resin is = $ 4.50

=> The total cost of purchases of the materials = 4.50 * 10800 = $ 48600