Portman Inc. produces and sells a specialty product. The production department prepared the following second quarter sales forecast:
- April -----
- 20,000 units
- May -----
- 24,000 units
- June -----
- 30,000 units
Inventory at March 31 was budgeted at 2,000 units. Sales for July are expected to be 35,000 units. The desired quantity of finished-goods inventory at the end of each month is to be equal to 10% of the next month's budgeted unit sales.
Each completed unit of finished product required 5 ounces of material. The cost per ounce is $1.25 per ounce. The company has determined that it needs 20% of next month's production needs in raw materials on hand at the end of each month.
How much should the company plan on spending on direct material for the month of May?