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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

Lorenzo's Frozen Pizza Inc. has determined from its production budget the following estimated production volumes for 12" and 16" frozen pizzas for September:

  Units
  12" Pizza 16"Pizza
Budgeted production volume 12,500 21,800

Three direct materials are used in producing the two types of pizza. The quantities of direct materials expected to be used for each pizza are as follows:

  12" Pizza 16" Pizza
Direct materials:    
Dough 0.80 lb. per unit 1.50 lb. per unit
Tomato 0.50 0.70
Cheese 0.70 1.30

In addition, Lorenzo's has determined the following information about each material:

  Dough Tomato Cheese
Estimated inventory, September 1 490 lb. 230 lb. 275 lb.
Desired inventory, September 30 580 lb. 185 lb. 340 lb.
Price per pound $0.50 $2.20 $2.60

Prepare September's direct materials purchases budget for Lorenzo’s Frozen Pizza Inc.

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 September’s direct materials purchases budget for Incorporation L.

Explanation

The following table shows theSeptember’s direct materials purchases budget.

Incorporation L
Direct Materials Purchases Budget
For The Month Ending September 30
Particulars Dough Tomato Cheese
Units Required For Production
12” Pizza 10,000(1) 6,250 (2) 8,750 (3)
16” Pizza  32,700 (4) 15,260 (4) 28,340 (6)
Add: Desired Inventory, September 30 580 185 340
Total Pounds Required 43,280 21,695 37,430
Less: Estimated Inventory, September 1 (490) (230) (275)
Total Pounds To Be Purchased (A) 42,790 21,465 37,155
Unit Price Per Pound (B) $0.50 $2.20 $2.60
Total (A) × (B) $21,395 $47,223 $96,603
Total Direct Materials To Be Purchased $165,221

Table (1)

Working Notes:

Calculate the direct material (dough) for 12” pizza.

Direct material (dough) cost for 12" pizza=12,500×0.80lb.=10,000 (1)

Calculate the direct material (tomato) for 12” pizza.

Direct material (tomato) cost for 12" pizza=12,500×0

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