Direct Materials Budget $-$ how much raw materials do we need to purchase and the related cost.

Five pounds of wood pulp are required for each wooden office desk, a very popular product sold by ABC Company.

The cost of the wood pulp is $$1$ per pound. Budgeted production of the wooden office desks is given below by quarters for Year $1$ and for the first quarter of Year $2$:

Budgeted production, desks

Year $1$

$\frac{\text{Y}\text{e}\text{a}\text{r}2}{Q1}$

The inventory of wood pulp at the end of a quarter must be equal to $10\%$ of the following quarter's production needs.

NO wood pulp will be on hand to start the first quarter of Year $1.$

a Prepare a direct materials budget for wood pulp, by quarter and in total, for Year $1.$

Note: finished good is the desk; raw material is the wood pulp

Year $1$

Req'd production, in units, of finished goods

$($desks$)$

Units of raw materials $($wood pulp$)$ needed,

per unit of finished goods

Units of raw materials needed to meet

production

Desired units of ending raw materials

inventory

Total Units of raw materials inventory

Beginning raw materials inventory

Units of raw material to be purchased

Unit cost of raw material

Cost of raw materials to be purchased

b How much cost will be incurred for the second quarter's raw material purchases?

c How many pounds of wood pulp is needed in the first quarter to meet all the requirements?

d Look at total year, how many units of raw materials are required to meet production and ending inventory requirements?