Direct Materials Purchases Budget Langer Company produces plastic items, including plastic housings for humidifiers. Each housing requires about 15 ounces of plastic costing $0.08 per ounce. Langer molds the plastic into the proper shape. Langer has budgeted production of the housings for the next four months as follows:
Units
July 3,500
August 4,400
September 4,900
October 6,300
Inventory policy requires that sufficient plastic be in ending monthly inventory to satisfy 30% of the following month's production needs. The inventory of plastic at the beginning of July equals exactly the amount needed to satisfy the inventory policy.
Required:
Prepare a direct materials purchases budget for July, August, and September, showing purchases in units and in dollars for each month and in total.
Langer Company
Direct Materials Purchases Budget
For July, August and September
July August September Total
Units to be produced
Direct materials per unit (ounces)
Production needs
Desired ending inventory (ounces)
Total needs
Less: Beginning inventory
Direct materials to be purchased (ounces)
Cost per ounce $0.1 $0.1 $0.1 $0.1
Total purchase cost $ $ $ $

Direct Materials Purchases Budget  For July, August and September

                                                                 July        August   September

Units to be produced                                3,500        4,400      4,900

Direct materials per unit (ounces)               15               15            15

Production needs                                     52,500     66,000    73,500

Desired ending inventory (ounces)         19,800      22,050    28,350

Total needs                                               72,300      88,050   101,850

Less: Beginning inventory                            0          (19,800)  (22,050)

Direct materials to be purchased           72,300      68,250    79,800

Cost per ounce                                          $0.1            $0.1         $0.1

Total purchase cost                                $7,230       $6,825   $7,980

Explanation:

A purchases budget budget is used to determine the quantities and cost of purchases required for resale or use in production.

Thus shows quantities that must be purchased to meet expected production plus any increase in inventory levels that might be required.

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