Question & Answer: Rad Co. provides the following sales forecast and production budget for the next four months: The company plans for finished good…..

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).

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