Question

use the following information for the quick study below. (algo)
miami solar manufactures solar panels for industrial use. the company budgets production of 4,700 units (solar panels) in july and 5,600 units in august.

qs 20-9 (algo) manufacturing: direct materials budget lo p1

each unit requires 2 pounds of direct materials, which cost $6 per pound. the companys policy is to maintain direct materials inventory equal to 30% of the next months direct materials requirement. as of june 30, the company has 2,820 pounds of direct materials in inventory. prepare the direct materials budget for july.

miami solar
direct materials budget
july
units to produce: 4,700
materials needed for production (pounds)
total materials required (pounds)
materials to purchase (pounds)
cost of direct materials purchases

Explanation:

Calculate materials needed for production

To find the materials needed for July production, multiply the budgeted production units by the materials required per unit.

• July units to produce: \(4,700\) units
• Materials per unit: \(2\) pounds
• Materials needed: \(4,700 \times 2 = 9,400\) pounds

Determine desired ending inventory

The company's policy is to maintain ending direct materials inventory equal to \(30\%\) of the next month's (August) materials requirement.

• August units to produce: \(5,600\) units
• August materials needed: \(5,600 \times 2 = 11,200\) pounds
• Desired ending inventory for July: \(11,200 \times 30\% = 3,360\) pounds

Calculate total materials required

Add the desired ending inventory to the materials needed for July production.

• Materials needed for production: \(9,400\) pounds
• Desired ending inventory: \(3,360\) pounds
• Total materials required: \(9,400 + 3,360 = 12,760\) pounds

Calculate materials to purchase

Subtract the beginning inventory (June 30 ending inventory) from the total materials required.

• Total materials required: \(12,760\) pounds
• Beginning inventory (June 30): \(2,820\) pounds
• Materials to purchase: \(12,760 - 2,820 = 9,940\) pounds

Calculate cost of direct materials purchases

Multiply the materials to purchase by the cost per pound.

• Materials to purchase: \(9,940\) pounds
• Cost per pound: \(\$6\)
• Cost of purchases: \(9,940 \times \$6 = \$59,640\)

Answer:

MIAMI SOLAR <br> Direct Materials Budget <br> July
Materials requirements per unit (pounds)	2
Materials needed for production (pounds)	9,400
Add: Desired ending inventory (pounds)	3,360
Total materials required (pounds)	12,760
Less: Beginning inventory (pounds)	2,820
Materials to purchase (pounds)	9,940
Cost per pound	\$6
Cost of direct materials purchases	\$59,640