Material usage budget is prepared after the determination of production need. Material consumption budget is depends upon the production volume. Material consumption per unit of output helps to prepare material uses budget for different types of materials to be consumed by the output. Budgeted production volume multiply by material per unit of output gives the budgeted consumption of material which then multiply the purchase price per unit and gives budgeted value of material use as under:
Material Consumption Budget
.................................................................Product A...........Product B
Budgeted Production Units.........................XX.........................XX
+) Material consumption/output...............XX.........................XX
Budgeted use of material............................XX..........................XX
X) Per unit purchase price............................$............................$
Budgeted value of material use.................$ XX.......................$ XX
Material Purchase Budget And Its Preparation
Manufacturing Company:
Manufacturing company purchase raw materials for its products to be produced. The quantity of materials to be purchased is determined by both production volume and inventory requirement. Purchase budget helps to determine the quantity and value of materials required for the budgeted period and also the inventory of materials required to be maintained. It is determined considering the consumption for budgeted production volume and opening and closing inventory requirement as under:
Material Purchase Budget
..............................................................Material A...................Material B
Budgeted consumption units..............XXX..............................XXX
Add: Required closing inventory........XXX..............................XXX
Total requirement................................XXX.............................XXX
Less: opening inventory.......................XXX.............................XXX
Budgeted purchase quantity................XX................................XX
X: Budgeted purchase price..................$X................................$X
Budgeted material purchases................$XX.............................$XX
Merchandising Company:
Merchandising company prepare merchandise purchase budget. Merchandise purchase budget is dependent not only a budgeted sales units but also on beginning and ending stock of merchandise. A merchandise purchase budget may be expressed in both units and price. General format of merchandise purchase budget is as follows:
Merchandise Purchase Budget
Budgeted Sales Volume................................................XXX
Add: Budgeted ending inventory................................XXX
Merchandise required to be available........................XXX
Less: Beginning inventory............................................XXX
Budgeted purchase units...............................................XXX
Budgeted purchase price/unit......................................X $
Budgeted purchase value..............................................$ XX
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