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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Direct Materials Purchases Budget

Langer Company produces plastic items, including plastic housings for humidifiers. Each housing requires about 15 ounces of plastic costing $0.08 per ounce. Langer molds the plastic into the proper shape. Langer has budgeted production of the housings for the next 4 months as follows:

Chapter 9, Problem 54E, Direct Materials Purchases Budget Langer Company produces plastic items, including plastic housings

Inventory policy requires that sufficient plastic be in ending monthly inventory to satisfy 20% of the following month’s production needs. The inventory of plastic at the beginning of July equals exactly the amount needed to satisfy the inventory policy.

Required:

Prepare a direct materials purchases budget for July, August, and September, showing purchases in units and in dollars for each month and in total.

To determine

Prepare direct material purchases budget for the year.

Explanation

Direct Material Purchases Budget:

Direct material purchases budget is a part of operating budget. Direct material purchases budget is prepared by adding materials required at the end and subtracting material available in the beginning, to the material required for production within the period.

Presentation of material purchase budget:

Particulars

July

($)

August

($)

September

($)

Total

($)

Expected purchases 1 (units)55,20067,50077,700

(55,200+67,500+77,700)

200,400

Expected cost (Expectedpurchaseunits×0.08perunit) 4,4165,4006,216

(4,416+5,400+6,216)

16,032

Table (1)

Working Notes:

1. Computation of expected material to be purchased in the month of July, August, and September:

ParticularsQuantity (Ounce)
July:
Material required for production (3,500 production units×15 ounce per unit) 52,500
Add: Material required for closing inventory (20

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