Question 7 Dodd Company makes and sells a single product. Each finished unit req

Question

Question 7

Dodd Company makes and sells a single product. Each finished unit requires
four pounds of direct materials. The budgeted units to be produced for the
third quarter of the current year are given below:

                  Budgeted Units to be Produced           

July.........................26,000 units                            

August.....................21,000 units                            

September................33,000 units

The company wants to maintain monthly ending inventories of direct materials
equal to 35% of the next month's production needs. The cost of the direct
materials is $1.75 per pound.

Assume Dodd Company pays for 60% of a month's purchases of direct materials
in the month of purchase and the other 40% is paid in the following month.

Calculate the total cash budgeted to be paid in August for direct material
purchases. Do not use decimals in your answer.

Explanation / Answer

Direct material purchases in July = (26000*4)+(21000*4*35%)-(26000*4*35%)*1.75= 169750 Direct material purchases in August = (21000*4)+(33000*4*35%)-(21000*4*35%)*1.75= 176400 Total cash budgeted to be paid in August for direct material purchases =(169750*40%)+(176400*60%)=173740

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