Perine Company has 5,460 pounds of raw materials in its December 31, 2019, ending inventory. Required production for January and February of 2020 are 4,200 and 6,000 units, respectively. 5 pounds of raw materials are needed for each unit, and the estimated cost per pound is $6. Management desires an ending inventory equal to 26% of next month’s materials requirements. Prepare the direct materials budget for January.

Instructions are below.

Explanation:

Giving the following information:

Beginning inventory= 5,460 pounds of raw materials

Production:

January= 4,200 units

February= 6,000 units

5 pounds of raw materials are needed for each unit, and the estimated cost per pound is $6.

Management desires an ending inventory equal to 26% of next month’s materials requirements.

Direct material budget= production + desired ending inventory - beginning inventory

Direct material budget (in pounds):

Production= 4,200*5= 21,000

Desired ending inventory= (6,000*5)*0.26= 7,800

Beginning inventory= (5,460)

Total= 23,340

Total cost= 23,340*6= $140,040

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