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 cost of direct materials purchases for the July direct materials budget, assuming the materials cost $1.15 per ounce, is:

Question

Quizplus · Accepted Answer

First, we calculate the total direct materials required for production in July and August, including safety stock:

July:
7,900 units + (8,100 units x 20% safety stock) = 9,740 units
9,740 units x 2 oz. per unit = 19,480 oz.

August:
8,100 units + (0 units x 20% safety stock) = 8,100 units
8,100 units x 2 oz. per unit = 16,200 oz.

Next, we calculate the direct materials needed to meet production in July, considering the starting inventory of 3,160 oz:

Direct materials needed in July = 19,480 oz. - 3,160 oz. = 16,320 oz.

Finally, we can calculate the cost of the direct materials purchases in July:

Direct materials cost = Direct materials needed x Cost per ounce
Direct materials cost = 16,320 oz. x $1.15 per oz.
Direct materials cost = $18,708

Therefore, the closest answer choice is A) $18,262.

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