Perine company has 2,000 pounds of raw materials in its december 31, 2016, ending inventory. required production for january and february of 2017 are 4,000 and 5,000 units, respectively. 2 pounds of raw materials are needed for each unit, and the estimated cost per pound is $6. management desires an ending inventory equal to 25% of next month’s materials requirements. prepare the direct materials budget for january.

Budgeted purchase for January = $48,000

Explanation:

Opening stock of raw material = 2,000 pounds

Requirement for January = 4,000 units 2 per unit = 8,000 units

Also provided that inventory upto 25% of next month requirement is to be held, that is for 5,000 units of finished goods 5,000 2 = 10,000 units 25% = 2,500 units, of raw material is required.

Total purchase for January = Closing requirement + Current month requirement - Opening Stock = 2,500 + 8,000 - 2,000 = 8,500 units to be purchased

Total purchase cost = 8,000 units $6 = $48,000

Final Answer

Budgeted purchase for January = $48,000

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