Zira Co. reports the following production budget for the next four months. April May June July Production (units) 582 610 616 596 Each finished unit requires four pounds of raw materials and the company wants to end each month with raw materials inventory equal to 40% of next month’s production needs. Beginning raw materials inventory for April was 931 pounds. Assume direct materials cost $5 per pound. Prepare a direct materials budget for April, May, and June.

Instructions are below.

Explanation:

Giving the following information:

Production (units):

April= 582

May= 610

June= 616

July= 596

Each finished unit requires four pounds of raw materials.

Desired ending inventory= 40% of next month’s production needs. Beginning raw materials inventory for April was 931 pounds.

Assume direct materials cost $5 per pound.

To calculate the purchases of raw material, we need to use the following formula for each month:

Purchases= sales + desired ending inventory - beginning inventory

April (in pounds):

Production= (582*4)= 2,328

Desired ending inventory= (610*4)*0.4= 976

Beginning inventory= (931)

Total pounds= 2,373

Total cost= 2,373*5= $11,865

May (in pounds):

Production= (610*4)= 2,440

Desired ending inventory= (616*4)*0.4= 986

Beginning inventory= (976)

Total pounds= 2,450

Total cost= 2,450*5= $12,250

June (in pounds):

Production= (616*4)= 2,464

Desired ending inventory= (596*4)*0.4= 954

Beginning inventory= (986)

Total pounds= 2,450

Total cost= 2,432*5= $12,160

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