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Direct Materials Budget

The direct materials budget first determines the quantity of raw materials that must be purchased in order to meet the production budget and then multiplies that quantity by the expected purchase cost. The method of calculation is similar to that for production: you will calculate the budgeted purchases of raw material in two parts. First calculate the direct materials needed for production and then calculate the cost in dollars for budgeted purchases of raw materials.

Step 1

  materials required for production

x direct materials cost per unit

= direct materials needed for production

Step 2

  direct materials needed for production from Step 1

+ desired ending materials inventory

-  beginning materials inventory

= budgeted purchases of raw materials                

The Unknown Comic has gathered the following information needed to prepare the direct materials budget:

You will also need the total units to be produced from the production budget.

The beginning inventory for the year, $550 is the ending inventroy  from the previous year. The desired ending inventory for each quarter becomes the beginning inventory for the next quarter. The total year colum includes:

• the beginning inventory for the year, which is also the beginning inventory for quarter 1, and
• the desired ending inventory for the year, which will become the beginning inventory for next year.

The bottom line for this budget is the estimate of the cost of raw materials that the company will need to purchase each quarter. The following amounts will be needed for the budgeted schedule of cost of goods manufactured:

• beginning inventory, direct materials, $550;
• purchases of raw materials, $19,250; and
• ending inventory, direct materials, $600.