Flagstaff Company has budgeted production units of 7,900 for July and 8,100 for

Question

Flagstaff Company has budgeted production units of 7,900 for July and 8,100 for August. The direct materials requirement per unit is 2 ounces. The company has determined that it wants to have safety stock of direct materials on hand at the end of each month to complete 20% of the units budgeted in the following month. There was 3,160 ounces of direct material in inventory at the start of July. The total cost of direct materials purchases for the July direct materials budget, assuming the materials cost $1.15 per ounce, is:

$18,262.

$21,896.

$14,536.

$18,078.

$18,170.

Explanation / Answer

Particulars July August Budgeted Production 7900 8100 Direct material to produce one unit 2 2 Units Required in production 15800 16200 Direct materials requirement Ounces required in production 15800 Opening inventory of direct material 3160 Safety stock to be maintained 3240 Units purchased from market 15880 Material Cost per ounce 1.15 Total material cost 18262

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