Graham Corporation's budgeted production schedule, by quarters, for the coming year is as follows:
Quarter 1 = 36,500 units
Quarter 2 = 33,000 units
Quarter 3 = 31,000 units
Quarter 4 = 38,000 units
Each unit of product requires two pounds of direct material. The company's policy is to begin each quarter with 25% of that quarter's direct materials production requirements.
Graham expects to have 64,000 pounds of direct materials on hand at the beginning of Quarter 1.
What would be Graham's budgeted direct materials purchases (in pounds) for the third quarter?
65,500 pounds
1. Estimated beginning inventory of direct materials, Quarter 3 = 31,000 units × 2 lbs./unit × 0.25 = 15,500 lbs.
2. Desired ending inventory of direct materials, Quarter 3 = [(38,000 units × 2 lbs./unit) × 0.25] = 19,000 lbs.
3. Lbs. of direct materials needed for Quarter 3 production = 31,000 units × 2 lbs./unit = 62,000 lbs.
4. Required purchases of direct materials, Quarter 3 = Production requirements + Desired ending inventory ? Beginning inventory = 62,000 lbs. + 19,000 lbs. ? 15,500 lbs. = 65,500 lbs.
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