Each unit requires 2 pounds of direct materials, which cost $6 per pound. The company’s policy is to maintain direct materials inventory equal to 20% of the next month’s direct materials requirement. As of June 30, the company has 2,040 pounds of direct materials in inventory, which complies with the policy. Prepare a direct materials budget for July.

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stokholm stokholm · Answer 1 · 2019-11-05T08:39:04+01:00

Answer: Budgeted Raw Material to be consumed in July.

Quantity Price per pound Total

10,200 $6 $61,200

Explanation:

As for the information provided, the material at month end in hand shall be:

20% of upcoming month's sale.

If in June at month end, the inventory in hand = 2,040 pounds of raw material.

Then, this represents 20% of total requirement of July.

Therefore, total requirement in July = [tex]\frac{2,040}{0.20} = 10,200\ pounds[/tex]

This basically means:

Total inventory required =

Quantity Price per pound Total

10,200 $6 $61,200