Castil Corporation makes and sells a product called a Miniwarp. One Miniwarp req

Question

Castil Corporation makes and sells a product called a Miniwarp. One Miniwarp requires 2.5 kilograms of the raw material Jurislon. Budgeted production of Miniwarps for the next five months is as follows: July August September ...20,000 units 20,900 units 20,800 units 20,600 units 21,300 units November The company wants to maintain monthly ending inventories of Jurison equal to 20% of the following month's production needs. On July 31 this requirement was not met since only 9,700 kilograms of Jurislon were on hand. The cost of Jurislon is $5.00 per kilogram. The company wants to prepare a Direct Materials Purchase Budget for the third quarter. What two concerns might you have in reviewing this budget?

Explanation / Answer

Two Issues in reviewing this Budget:

1. Maintenance of ending inventory as we have missed it in July.

2. Raw Material Mix to Production and Cost per KG of raw material. Currently, 2.5KG is required to produce each unit.

July August Sep Budgeted Production in Units              20,000              20,900              20,800 Raw Material Required per Unit                   2.50                   2.50                   2.50 Raw Material Required for Productionper Unit              50,000              52,250              52,000 Budgeted Ending Direct Material(20%)                 9,700              10,400              10,300 Beginning Direct Material                        -                   9,700              10,400 Budgeted DM Purchases              59,700              52,950              51,900 Cost per KG                   5.00                   5.00                   5.00 Budgeted DM Purchases in $      298,500.00      264,750.00      259,500.00

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