Preston, Inc., manufactures wooden shelving units for collecting and sorting mai

Question

Preston, Inc., manufactures wooden shelving units for collecting and sorting mail. The company expects to produce 480 units in July and 400 units in August. Each unit requires 10 feet of wood at a cost of $1.50 per foot. Preston wants to always have 300 feet of wood on hand in materials inventory.

Compute Preston’s raw materials purchases budget for July and August.

Preston, Inc., manufactures wooden shelving units for collecting and sorting mail. The company expects to produce 480 units in July and 400 units in August. Each unit requires 10 feet of wood at a cost of $1.50 per foot. Preston wants to always have 300 feet of wood on hand in materials inventory.

Explanation / Answer

Preston’s raw materials purchases budget for July and August :

July = [(480 units produced * 10 per unit) + 300 feet in hand ]* $1.50 per foot rate

= (4800 + 300) feet * 1.50/foot = $7650

August = Material required for production (400 * 10) - 300 opening balance =net purchases for production =3700feet

Raw material purchases budget for August = (3700 feet + 300 feet in hand) * 1.50/foot = $6000

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