Miami solar manufactures solar panels for industrial use. the company budgets production of 5,000 units (solar panels) in july and 5,300 units in august. each unit requires 3 pounds of direct materials, which cost $6 per pound. the company's policy is to maintain direct materials inventory equal to 30% of the next month's direct materials requirement. as of june 30, the company has 4,500 pounds of direct materials in inventory, which complies with the policy. prepare a direct materials budget for july.

The correct answer is $91,620.

Explanation:

According to the scenario, the given data are as follows:

Budget production units = 5,000 units

Pounds per unit = 3

Cost per pound = $6

Beginning inventory = 4,500 pounds

So, first we calculate the material needed for production by using following formula:

Material needed for production = Units  × Pounds per unit

= 5,000 × 3

= 15,000

Now we calculate the total material requirement by using following formula:

Total material requirement = Material needed for production + 30% of next month requirement

= 15,000 + (( 5300 × 3) × 30%)

= 15,000 + 4,770

= 19,770

So, material to be purchased can be calculated as:

Material to be purchased = Total material requirement – Beginning inventory

= 19,770 - 4500

= 15,270

So, Direct material cost can be calculated by using following formula:

Total cost for direct material = Material to be purchased × Cost per pound

= 15,270 × $6

= $91,620

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