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.
Direct Materials Budget
For April, May, and 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).