A manufacturing company has budgeted production at 5,000 units for May and 4,400 units in June. Each unit requires 3 pounds of materials at a cost of $10 per pound. On May 1, there are 2,750 pounds of materials on hand. The company desires an ending inventory of 60% of the next month's materials requirements. The total cost of direct materials purchases for May will be $

$201,700

Explanation:

Given the following;

Budgeted Units of production :

May = 5,000 units

June = 4,400 units

Required pound/unit of product = 3

Cost per pound = $10

Calculating cost of direct material purchase for the month of May ;

Starting with the required pound(lbs) of material for MAY :

Pound for Budgeted unit = Budgeted unit × pound per unit

= 5000 × 3 = 15,000 pounds

Ending inventory = 60% of Budgeted material for JUNE :

0.6 × 4400 = 2640 units

Budgeted unit × pound per unit

2640 × 3 = 7920 pounds

Deduct beginning inventory (2750)

Total pounds of material for MAY production :

15,000 + 7,920 - 2750 = 20,170 pounds

Therefore, cost of total direct material purchases =

Total pound of materials needed × cost per pound

20,170 × $10 =$201, 700

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