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9 April, 03:58

Ramos Co. provides the following sales forecast and production budget for the next four months:

April May June July

Sales (units) 500 580 530 600

Budgeted production (units) 442 570 544 540

The company plans for finished goods inventory of 160 units at the end of June. In addition, each finished unit requires 5 pounds of direct materials and the company wants to end each month with direct materials inventory equal to 30% of next month's production needs. Beginning direct materials inventory for April was 720 pounds. Direct materials cost $2 per pound. Each finished unit requires 0.50 hours of direct labor at the rate of $20 per hour. The company budgets variable overhead at the rate of $24 per direct labor hour and budgets fixed overhead of $8,400 per month.

Prepare a direct materials budget for April, May, and June.

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Answers (1)
  1. 9 April, 06:40
    0
    Instructions are below.

    Explanation:

    Giving the following information:

    Budgeted production (units):

    April = 442

    May = 570

    June = 544

    July = 540

    The company plans for a finished goods inventory of 160 units at the end of June.

    Each finished unit requires 5 pounds of direct materials.

    The company wants to end each month with direct materials inventory equal to 30% of next month's production needs.

    Beginning direct materials inventory for April was 720 pounds.

    Direct materials cost $2 per pound.

    To calculate the direct material required for each month, we need to use the following formula:

    Direct material budget (in pounds) = production + ending inventory - beginning inventory

    Budgeted direct material in pounds and dollars:

    April:

    Direct material for production = 442*5 = 2,210 pounds

    Ending inventory = (570*5) * 0.3 = 855

    Beginning inventory = (720)

    Total pounds = 2,345

    Total cost = 2,345*2 = $4,690

    May:

    Direct material for production = 570*5 = 2,850 pounds

    Ending inventory = (544*5) * 0.3 = 816

    Beginning inventory = (855)

    Total pounds = 2,811

    Total cost = 2,811*2 = $5,622

    June:

    Direct material for production = 544*5 = 2,720 pounds

    Ending inventory = (540*5) * 0.3 = 810

    Beginning inventory = (816)

    Total pounds = 2,714

    Total cost = 2,714*2 = $5,428

    July:

    Direct material for production = 540*5 = 2,700 pounds

    Beginning inventory = (810)

    Total pounds = 1,890

    Total cost = 1,890*2 = $3,780
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