Problem:
Preparing a direct materials budget: It takes 3 pounds of direct materials to produce the Regular product and 5 pounds of direct materials to produce the Deluxe product. It is the company's policy to maintain an inventory of direct materials on hand at the end of each month equal to 30% of the next month's production needs for the Regular product and 20% of the next month's production needs for the Deluxe product. Direct materials inventory on hand at June 30 were 9,000 pounds for the Regular product and 15,000 pounds for the Deluxe product. The cost per pound of materials is $5 Regular and $7 Deluxe. Assume that the production budget reveals the following.
July August September
Units to be produced for Regular
10,000 6,000 9,000
July August September
Units to be produced for Deluxe
15,000 10,000 14,000
Lastly, assume that in October the Regular product requires 24,000 pounds and Deluxe 60,000 pounds of material.