Norton Manufacturing expects to produce 2,100 units in January and 3,200 units i

Question

Norton Manufacturing expects to produce 2,100 units in January and 3,200 units in February. Norton budgets $45 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 $38,450. Norton desires the ending balance in Raw Materials Inventory to be 40% of the next month's direct materials needed for production. Desired ending balance for February is $51,300. What is the cost of budgeted purchases of direct materials needed for January?

Explanation / Answer

Cost of Budgeted Purchases of direct materials needed for January = ending inventory of January + cost direct materials required in January - beginning inventory of January = (51300*40%) + (2100*45) - 38450 = $76,570

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