Home Furniture Inc. expects to produce 5,000 finished goods (FG) units (in tables) in October and 5,500 FG units (in tables) in November. Each table needs 2 meters of direct material (DM) in wood that costs $5 (per meter of wood). Target ending DM inventory is 10% of the next month's total production needs in DM (meters of wood). There is DM of 600 meters of wood in inventory on September 30. Total budgeted cost of DM purchases of wood during October will be

Question

Quizplus · Accepted Answer

Budgeted Quantity of DM to be Purchased = (Budgeted Units to be Produced × Budgeted Quantity of DM needed per Unit) + Target Ending DM Inventory Quantity F1F1F1S1?F1F1F10 Beginning DM Inventory Quantity; Budgeted Quantity of DM to be Purchased = (5,000 x 2) + (5,500 x 2 x 10%) F1F1F1S1?F1F1F10 600 = 10,500 (meters of wood); Budgeted Cost of DM to be Purchased = Budgeted Quantity of DM to be Purchased × Budgeted Cost of DM (per meter of wood); Budgeted Cost of DM to be Purchased = 10,500 (meters of wood) x $5 (per meter of wood) = $52,500.