[The following information applies to the questions displayed below.] Black Diam

Question

[The following information applies to the questions displayed below.]

Black Diamond Company produces snow skis. Each ski requires 2 pounds of carbon fiber. The company’s management predicts that 6,000 skis and 7,000 pounds of carbon fiber will be in inventory on June 30 of the current year and that 160,000 skis will be sold during the next (third) quarter. A set of two skis sells for $400. Management wants to end the third quarter with 4,500 skis and 5,000 pounds of carbon fiber in inventory. Carbon fiber can be purchased for $25 per pound. Each ski requires 0.5 hours of direct labor at $30 per hour. Variable overhead is applied at the rate of $18 per direct labor hour. The company budgets fixed overhead of $1,792,000 for the quarter.

2. Prepare the third-quarter direct materials (carbon fiber) budget; include the dollar cost of purchases.

Explanation / Answer

BLACK DIAMOND COMPANY Direct Materials Budget Third Quarter Budgeted production (4,500 + 160,000 - 6,000)        158,500 units Raw material needed per ski 2 pounds Materials needed for production (158,500 x 2)        317,000 pounds Add: Desired Ending inventory of raw materials 5,000 pounds Total materials requirements (317,000 + 5,000) 322,000 pounds Less: Beginning inventory of raw materials 7,000 pounds Direct materials to be purchased (322,000 - 7,000) 315,000 pounds Cost of raw materials per pound $25 Budgeted cost of direct materials purchases (315,000 x $25) $7,875,000

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