Flagstaff Company has budgeted production units of 7,900 for July and 8,100 for August. The direct materials requirement per unit is 2 ounces. The company has determined that it wants to have safety stock of direct materials on hand at the end of each month to complete 20% of the units budgeted in the following month. There was 3,160 ounces of direct material in inventory at the start of July. The total cost of direct materials purchases for the July direct materials budget, assuming the materials cost $1.15 per ounce, is:

$18,262.

$21,896.

$14,536.

$18,078.

$18,170.

Option $18,262

Explanation:

Data provided in the question:

Budgeted production units for July = 7,900

Budgeted production units for August = 8,100

Direct material required per unit = 2 ounces

safety stock of direct materials = 20% of the units budgeted in the following month

Direct material in inventory at the start of July = 3,160 ounce

Materials cost = $1.15 per ounce

Now,

Budgeted material required in July

= Budgeted production units for July * Direct material required per unit

= 7,900 * 2

= 15800 ounces

Budgeted material required in August

= Budgeted production units for August * Direct material required per unit

= 8,100 * 2

= 16,200 ounces

Direct materials requirement in July

= Budgeted material required in July + safety stock - Direct material in inventory at the start of July

= 15800 + (20% of 16,200) - 3,160

= 15800 + 3,240 - 3,160

= 15,880 ounces

Cost of direct material

= Direct materials requirement in July * Materials cost

= 15,880 ounces * $1.15 per ounce

= $18,262

Option $18,262