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9 May, 10:03

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 (oz.). The company requires to have safety stock of direct materials on hand at the end of each month to complete 20% of the units of budgeted production in the following month. There was 3,160 ounces of direct material in inventory at the start of July. The total ounces of direct materials to be purchased in July is:

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  1. 9 May, 13:57
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    Purchases = 15,880 ounces

    Explanation:

    Giving the following information:

    Production:

    July = 7,900

    August = 8,100

    The direct materials required per unit is 2 ounces (oz.).

    Ending inventory = 20% of the units of budgeted production in the following month.

    There were 3,160 ounces of direct material in inventory at the start of July.

    To calculate the direct material purchase required, we need to use the following formula:

    Purchases = production + desired ending inventory - beginning inventory

    Purchases = 7,900*2 + (8,100*2) * 0.2 - 3,160

    Purchases = 15,880 ounces
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