1.
Accounting 202
PURCHASES BUDGET: FACTS:
David, Inc. is preparing its purchases budget for April. The following sales information has been
gathered:
April May
Unit sales 400 500
Raw materials inventory on 1 April: 450 pounds
April production: 430 units
Cost per pound: $ 5
Desired ending inventory each month: Raw materials: 25% of next month's production.
Number of pounds of raw material required per finished unit: 4 lb.
REQUIRED: a) How many pounds of raw materials should be purchased in April ?
b) What will be the cost of these purchases?
Solution
a) Purchase of Raw Material in April:
Production of May: Required 500, Ending Units = 30, Production Required 470 Units.
Material Required = 470 x 4 = 1,880 lb.
b) Cost of Purchase = 1,740 x 5 = $8,700

2.
Units
April production 430
Raw Material Required (430 x 4) 1,720
Desired Level of Ending Inventory (1,880 x 25%) 470
Total Raw Material Required 2,190
- Opening Stock of Raw Material 450
Raw Material required to be Purchased in April 1,740