The company wants to end each month with ending finished goo

The company wants to end each month with ending finished goods inventory equal to 40% of next month\'s forecasted sales. Finished goods inventory on April 1 is 204 units. Assume July\'s budgeted production is 540 units. In addition, each finished unit requires six pounds (lbs.) of raw materials and the company wants to end each month with raw materials inventory equal to 30% of next month’s production needs. Beginning raw materials inventory for April was 976 pounds. Assume direct materials cost $4 per pound.

April May JuneJuly Sales (units) 510 590 540 630

Solution

Working Notes:

- A point to remember while solving any budgeting problem is closing inventory of preceeding month will be opening invemtory of the suceeding month.

	RUIZ Co.
	Direct Materials Budget
	For April, May and June
	April	May	June
Budgeted Production (Unit)	542	570	576
Material Requirement per unit	6	6	6
Materials needed for production (lbs)	3252	3420	3456
	(542*6)	(570*6)	(576*6)
Budgeted Ending Inventory (lbs)	1026	1038	972
Total Material Requirements (lbs)	4278	4458	4428
Beginning Inventory (lbs)	976	1026	1038
Materials to be purchased (lbs)	3302	3432	3390
cost per lbs	4	4	4
Total Budgeted Direct Material Cost	13208	13728	13560