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:

Question

Quizplus · Accepted Answer

The correct answer is A. The total cost of direct materials purchases for the July direct materials budget is $18,262. This is calculated as follows:Budgeted production units for August = 8,100 unitsSafety stock of direct materials = 20% of 8,100 units = 1,620 unitsTotal direct materials required for August = 8,100 units + 1,620 units = 9,720 unitsDirect materials requirement per unit = 2 ouncesTotal direct materials required for August = 9,720 units * 2 ounces per unit = 19,440 ouncesDirect materials inventory at the start of July = 3,160 ouncesDirect materials required for August = 19,440 ouncesDirect materials to be purchased in July = 19,440 ounces - 3,160 ounces = 16,280 ouncesCost of direct materials per ounce = $1.15Total cost of direct materials purchases for July = 16,280 ounces * $1.15 per ounce = $18,262

Flagstaff Company Has Budgeted Production Units of 7,900 for July