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 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 amount of direct materials in ounces, to be purchased in July is:

Question

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The company wants to have safety stock on hand equal to 20% of the units budgeted in the following month.

For July: 
Safety Stock = 20% of 8,100 units (August budget) = 1,620 units 
Total required units = 7,900 + 1,620 = 9,520 units 
Direct materials required = 9,520 units x 2 oz. = 19,040 oz.

However, the company already has 3,160 ounces of direct materials in inventory at the start of July.

Therefore, the total amount of direct materials in ounces to be purchased in July is: 
19,040 oz. – 3,160 oz. = 15,880 oz.

The correct answer is D (15,880 oz.).

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