Prepare the Direct Material Usage Budget and Direct Material Purchases Budget

Now that we know how many units we will like to produce, we can use this number to compute the usage of direct materials in units and dollars. Direct material purchases  are based on the budgeted direct materials to be used, the beginning  inventory of direct materials, and the target ending inventory of direct materials.

Purchases of direct materials =                  Direct materials used in production

+ Target ending inventory of direct materials

–    Beginning inventory of direct materials

Next: Preparing the Direct Labor Costs Budget.

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