Ruiz Co. provides the following sales forecast for the next four months: April May June July
Sales (units) 560 640 590 680

The company wants to end each month with ending finished goods inventory equal to 30% of next month's forecasted sales. Finished goods inventory on April 1 is 168 units. Assume July's budgeted production is 590 units. In addition, each finished unit requires six pounds (lbs.) of raw materials and the company wants to end each month with raw materials inventory equal to 30% of next month’s production needs. Beginning raw materials inventory for April was 1,051 pounds. Assume direct materials cost $4 per pound.

Required:
Prepare a direct materials budget for April, May, and June.

Instructions are below.

Explanation:

We need to calculate the production required for each month:

Production= sales + desired ending inventory - beginning inventory

April= 560 + (640*0.3) - 168= 584

May= 640 + (590*0.3) - 192= 625

June= 590 + 680*0.3 - 177= 617

Now, we can prepare the direct material budget:

Purchases= production + desired ending inventory - beginning inventory

April (pounds):

Production= 584*6= 3,504

Desired ending inventory= (625*6)*0.3= 1,125

Beginning inventory= (1,051)

Total pounds= 3,578

Total cost= 3,578*4= $14,312

May (pounds):

Production= 625*6= 3,750

Desired ending inventory= (617*6)*0.3= 1,110.6

Beginning inventory= (1,125)

Total pounds= 3,735.6

Total cost= 3,735.6*4= $14,942.4

June:

Production= 617*6= 3,702

Desired ending inventory= (590*6)*0.3= 1,062

Beginning inventory= (1,110.6)

Total pounds= 3,653.4

Total cost= 3,653.4*4= $14,613.6

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