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Rad Co. provides the following sales forecast and production budget for the next four months: The company plans for finished goods inventory of 320units at the end of June. In addition, each finished unit requires five pounds of raw materials at cost of $2.00 per pound. 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 960 pounds. Each finished unit requires 0.40 hours of direct labor at the rate of $19 per hour. The company budgets variable overhead at the rate of $23 per direct labor hour and budgets fixed overhead of $10,000 per month. Prepare a raw materials budget for April, May, and June.
Expert Answer
RAD CO.
Direct Materials Budget
For April, May, and June
| April | May | June | ||
| Budget production (units) | 640 | 770 | 740 | units |
| Materials requirements per unit | 5 | 5 | 5 | lbs. |
| Materials needed for production (lbs.) | 3,200 | 3,850 | 3,700 | lbs. |
| Budgeted ending inventory (lbs.) | 1,155 | 1,110 | 1,110 | lbs. |
| Total materials requirements (lbs.) | 4,355 | 4,960 | 4,810 | lbs. |
| Beginning inventory (lbs.) | (960) | (1,155) | (1,110) | lbs. |
| Materials to be purchased (lbs.) | 3,395 | 3,805 | 3,700 | lbs. |
| Materials price per pound | $2.00 | $2.00 | $2.00 | |
| Total cost of direct materials purchases | $6,790 | $7,610 | $7,400 |
Add budgeted ending inventory:
30% of next month’s materials needed for production.
July’s materials needed for production equals 3,700 pounds (740 units × 5).
