Problem:
Donnelly Manufacturing sells cedar birdhouses. The company has prepared the following forecast for the third quarter of 2009:
July 5,000 units
August 6,000 units
September 10,000 units
Inventory at June 30, 2009 was budgeted at 1,000 units. Management would like the desired quantity of finished goods inventory at the end of each month to be equal to 20% of next month's budgeted unit sales. October's sales are projected to be 12,000 units.
Each completed unit of finished product requires 3 square feet of cedar at a cost of $1.50 per square foot.
Refer to the Donnelly Manufacturing information above. The company has determined that it needs 10 percent of next month's raw material needs on hand at the end of each month.
The cost of the direct material that should be purchased in August is?