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25 4. Direct Materials Purchasing Policy 26 Each month the Company purchases enough direct materials to meet that month's 27 production requirements and an amount

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25 4. Direct Materials Purchasing Policy 26 Each month the Company purchases enough direct materials to meet that month's 27 production requirements and an amount equal to 25% of the next month's estimated 28 production requirements. Each unit of finished product requires 2.83 pounds of direct 29 materials at a cost of $1.38 per pound. On December 31, 2016, the direct materials 30 inventory consisted of 5,213 lbs. at a cost of $1.38. 31 32 Payments are made as follows: 33 In the month of purchase: 34 In the following month the balance: 20% 35 36 The accounts payable balance of $5,755.15 as of December 31, 2016, represents 20% of 37 purchases made in December 2016 to be paid in January 2017. 38 80%

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