25 4. Direct Materials Purchasing Policy 26 Each month the Company purchases eno

Question

25 4. Direct Materials Purchasing Policy 26 Each month the Company purchases enough direct materials to meet that month's 27 production requirements and an amount equal to 25% of the next month's estimated 28 production requirements. Each unit of finished product requires 2.83 pounds of direct 29 materials at a cost of $1.38 per pound. On December 31, 2016, the direct materials 30 inventory consisted of 5,213 lbs. at a cost of $1.38. 31 32 Payments are made as follows: 33 In the month of purchase: 34 In the following month the balance: 20% 35 36 The accounts payable balance of $5,755.15 as of December 31, 2016, represents 20% of 37 purchases made in December 2016 to be paid in January 2017. 38 80%

Explanation / Answer

708.75*2.83

=2005.76

January February March Quarter 1 Production budget 7367 7373 8493 23232 Raw material required per unit 2.83 2.83 2.83 2.83 Raw material required for production 20,848.61 20,865.59 24,035.19 65,746.56 Add:- closing raw material 5216.40 6008.80

708.75*2.83

=2005.76

13,259.26 Less:- Opening raw material 5213 5216.40 6008.80 16,438 .20 Raw material purchase 20,852 21,658 20,032.15 62,570.45

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