3. Norton Manufacturing expects to produce 2,900 units in January and 3,600 units in February. Norton budgets $20 per unit for direct materials. Indirect materials are insignificant and not considered for budgeting purposes. The balance in the Raw Materials Inventory account (all direct materials) on January 1 is $38,650. Norton desires the ending balance in Raw Materials Inventory to be 10% of the next month's direct materials needed for production. Desired ending balance for February is $51,100. What is the cost of budgeted purchases of direct materials needed for February?

Raw material purchase budget= $115,900

Explanation:

Material purchase budget is determined by adding the closing inventory of material material usage budget  and sales the opening inventory.

Material budgets budget for February will be prepared as follows:

Closing inventory of raw material in January = 110% of February direct material usage.

Materials needed for February production = 3,600 × $20 = $72000

Closing inventory of raw material in January = 10% × $72,000

                                                                        = $7,200

Note the  closing inventory of January will be the opening inventory of February.

Material purchase budget for February = Usage budget + closing inventory - opening inventory

= $72000 + $51,100 - $7,200

= $115,900

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