Direct material purchases and budgetedpayments
Campbell Manufacturing intends to start business on January 1.Production plans for the first four months of operations are asfollows:
| January | 8,000 | units |
| February | 20,000 | units |
| March | 28,000 | units |
| April | 28,000 | units |
Each unit requires two pounds of material. The firm would liketo end each month with enough raw material to cover 25 percent ofthe following month’s production needs. Raw material costs $7 perpound. Management pays for 40 percent of purchases in the month ofpurchase and receives a 10 percent discount for these payments. Theremaining purchases are paid in the following month, with nodiscount available.
a. Prepare a purchases budget for the first quarter of theyear in units, in total, and in dollars.
Note: Do not use a negative sign with youranswers.
| January | February | March | Quarter |
|---|
| Units produced | | | | |
| Pounds per unit | x 2 | x 2 | x 2 | x 2 |
| Pounds needed | | | | |
| EI in pounds | | | | |
| Total required | | | | |
| Less BI | | | | |
| Pounds to purchase | | | | |
| Cost per pound | x $7 | x $7 | x $7 | x $7 |
| Total cost of RM | | | | |
b. Determine the budgeted payments for purchases of rawmaterial for each of the first three months of operations and forthe quarter in total.
| Payments |
|---|
| January | February | March | Quarter |
|---|
| January purchases | | | | |
| February purchases | | | | |
| March purchases | | | | |
| Total | | | | |
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