Question: Direct Materials Purchases Budget Fang Company produces decorative plastic items, including hollow plastic pumpkins often used by trick-or-treaters for Halloween. Each pumpkin requires about 5 ounces of plastic costing $0.08 per ounce. Fang molds the plastic into a pumpkin shape and applies decoration to the outside of each pumpkin. Fang has budgeted production of the pumpkins for the next four months as follows:
Units
July 2,800
August 20,000
September 30,000
October 2,000
Inventory policy requires that sufficient plastic be in ending monthly inventory to satisfy 20 percent 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.