Perine Company has 4,872 pounds of raw materials in its December 31, 2019, ending inventory. Required production for January and February of 2020 are 4,200 and 5,800 units, respectively. 4 pounds of raw materials are needed for each unit, and the estimated cost per pound is $7. Management desires an ending inventory equal to 29% of next month’s materials requirements. Prepare the direct materials budget for January.

Results are below.

Explanation:

Giving the following information:

beginning inventory= 4,872 pounds

Production (in pounds):

January= 4,200*4= 16,800 pounds

February= 5,800*4= 23,200 pounds

Management desires an ending inventory equal to 29% of next month’s materials requirements.

We need to calculate the direct material budget for January:

Purchases= production + desired ending inventory - beginning inventory

Direct material budget (January)

Purchases (in pounds)= 16,800 + (23,200*0.29) - 4,872= 18,656

Direct material cost= 18,656*7= $130,592

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