XYZ Company makes and sells a single product. Each finished unit requires four p

Question

XYZ Company makes and sells a single product. Each finished unit requires four pounds of direct materials. The budgeted units to be produced over the next four months is as follows: January February March April 16,000 units 18,000 units 25,000 units 19,000 units The company wants to maintain monthly ending inventories of direct materials equal to 35% of the following month's production needs. The cost of the direct materials is $1.75 per pound Calculate the total cost of direct materials budgeted to be purchased in March. Do not use decimals in your answer.

Explanation / Answer

Total Cost of Direct Materials budgeted to be purchased in March.

Total Direct Material required for production of 25,000 unit = 100,000 pound

Since monthly ending inventories of direct material is 35% of following month production need. Therefore out of 100,000 pound need in production for March month 35,000 pound is being purchased in February. So balance 65,000 pound need to be purchase in March. Additionally out of 76,000 pound require in month of April production, 26,600 pound is to be purchase in March.

So total Direct Material to be purchase in March = 65,000 + 26,600

= 91,600 pound

Cost of Direct Material = $ 1.75 per pound

Total Cost = 91,600 x $ 1.75

= $ 160,300

MONTH BUDGETED UNIT DIRECT MATERIAL( pound) JANUARY 16,000 64,000 FEBRUARY 18,000 72,000 MARCH 25,000 100,000 APRIL 19,000 76,000

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