Question

Flagstaff Company has budgeted production units of 9,800 for July and 10,000 for August. The direct materials requirement per unit is 3 ounces (oz.). The company has determined that it wants to have safety stock of direct materials on hand at the end of each month to complete 25% of the units of budgeted production in the following month. There was 7,350 ounces of direct material in inventory at the start of July. The total cost of direct materials purchases for the July direct materials budget, assuming the materials cost $1.20 per ounce, is:

Answer 1

Answer:

$35,460

Explanation:

The computation of the total cost of direct material purchase is shown below:

= Ending inventory + required production - beginning inventory

where,

Ending inventory would be

= 10,000 × 3 ounces × 25%

= 7,500 ounces

Opening inventory is 7,350 ounces

And, the required production would be

= 9,800 × 3 ounces

= 29,400 ounces

Now put these values to the above formula  

So, the value would equal to

= 7,500 ounces + 29,400 ounces - 7,350 ounces

= 29,550 ounces

For $1.20 per pounce, it would be

= 29,550 ounce × $1.20

= $35,460