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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Direct materials purchases budget

Anticipated sales for Safety Grip Company were 42,000 passenger car tires and 19,000 truck tires. Rubber and steel belts are used in producing passenger car and truck tires as follows:

  Passenger Car Truck
Rubber 35 lb. per unit 78 lb. per unit
Steel belts 5 lb. per unit 8 lb. per unit

The purchase prices of rubber and steel are $1.20 and $0.80 per pound, respectively. The desired ending inventories of rubber and steel belts are 40,000 and 10,000 pounds, respectively. The estimated beginning inventories for rubber and steel belts are 46,000 and 8,000 pounds, respectively.

Prepare a direct materials purchases budget for Safety Grip Company for the year ended December 31, 20Y8.

To determine

Budgeting is a process to prepare the financial statement by the manager to estimate the organization’s future actions. It is also helpful to satisfy the everyday activities.

Production Budget shows the quantities of units that a company must produce to meet the budgeted sales and inventory.

To Prepare: The direct materials purchases budget for Company S.

Explanation

The following table shows thedirect materials purchases budget.

Company S
Direct Materials Purchases Budget
For The Month Ending December 31, 20Y8
Particulars Rubber Steel Belts
Pounds Required For Production:
Passenger tires 1,470,000 (1) 210,000 (2)
Truck tires 1,482,000 (3) 152,000 (4)
Add: Desired Inventory, December 31, 20Y8 40,000 40,000
Total Pounds Required 2,992,000 372,000
Less: Estimated Inventory, January 1, 20Y8 (46,000) (8,000)
Total Pounds To Be Purchased (A) 2,946,000 364,000
Unit Price Per Pound (B) $1.20 $0.80
Total (A) × (B) $3,535,200 $291,200
Total Direct Materials To Be Purchased $3,826,400

Table (1)

Working Notes:

Calculate the direct material (rubber) for passenger tires.

Direct material (rubber) cost for passenger tires=42,000×35lb.=1,470,000 (1)

Calculate the direct material (steel belts) for passenger tires

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