Flagstaff Company has budgeted production units of 8,100 for July and 8,300 for August. The direct materials requirement per unit is 2 ounces (oz.). The company has determined that it wants to have safety stock of direct materials on hand at the end of each month to complete 30% of the units budgeted in the following month. There was 4,860 ounces of direct material in inventory at the start of July. The total cost of direct materials purchases for the July direct materials budget, assuming the materials cost $1.25 per ounce, is:

Total cost = $20,400

Explanation:

Giving the following information:

Flagstaff Company has budgeted production units of 8,100 for July and 8,300 for August.

The direct materials required per unit is 2 ounces (oz.)

Safety stock of direct materials = 30% of the units budgeted in the following month.

Beginning inventory = 4,860 ounces

materials cost $1.25 per ounce

To calculate the total cost, first, we need to determine the total amount of direct material to be purchased.

Direct material required:

Sales = (8,100*2 ounces) = 16,200

Ending inventory = (8,300*2) * 0.3 = 4,980 ounces

Beginning inventory = (4,860)

Total ounces = 16,320 ounces

Now, we can calculate the total cost.

Total cost = 16,320*1.25 = $20,400