 hello in this lecture we're going to continue on with our master budget and we are now moving to the raw materials budget so remember that uh last time we got to do this in order last time we did the sales budget first a word from our sponsor yeah actually we're sponsoring ourselves on this one because apparently the merchandisers they don't want to be seen with us but but that's okay whatever because our merchandise is is better than their stupid stuff anyways like our trust me i'm an accountant product line yeah it's paramount that you let people know that you're an accountant because apparently we're among the only ones equipped with the number crunching skills to answer society's current deep complex and nuanced questions if you would like a commercial free experience consider subscribing to our website at accounting instruction dot com or accounting instruction dot think of it dot com then we did the production budget and now we're able to do the raw materials budget and why does it have to be in that order because in order to do anything we gotta know how much we're gonna sell basically and then we can think about how much we are going to uh need to produce in order to meet our sales needs and that's where we are at we have these production numbers in units we're talking about units in this case and if we're talking about you know widgets or if we had guitars or something this is how many guitars we would make now we need to know how much material we're going to need in order to make that guitar so how much we're gonna have to purchase in terms of raw materials in order to do that remember that in in these types of problems many times uh what we're gonna have to think about is how many units of materials does it take to produce one unit of um product so and that's what we're gonna take a look at within the raw materials production budget which must be done after we do the production budget so we're gonna start we're gonna start off with the production budget in units the numbers that we just uh calculated up here remember that we are working in the third quarter being July August and September and we're just gonna pull these numbers down so I'm gonna say this equals what we came up with in the production budget this is how many units that we believe we need to uh produce in uh July and August we believe it's going to be 20 and yes you can copy and paste this over and it would work and uh 2005 for September next we're going to need the material requirements per unit so basically these are the units we're going to make and we're going to say well how much raw material how many how many things do we need in order to make that so if the guitar we would need when we talk about how much wood would would we need in order to make that we're going to have to get that from the problem obviously in real life we would have some kind of estimate of how much material it takes to make each of these things and uh we're going to take that from the problem so the problem's going to have to give us somewhere that how much material it will take and in this case we have right here raw material units per finished it's 0.5 so 0.5 units so we're going to be up here we're going to say it's 0.5 enter and that's how many units that we will have then if we multiply that out then for the uh 19 uh 586 we're going to say it's only going to take the 0.5 units and therefore we would need 9793 units we're going to do that for August whoop well first I got to put the 0.5 all the way across 0.5 for August and 0.5 for September so for August we're going to say it's how many units we need to produce times 0.5 which is the amount of the material per unit and that will give us uh August September will be the 2005 times once again the 0.5 so that gives us the materials needed for production however just like we had up here when we did the production budget in in total units we also down here might want to have some inventory left over at the end of the month so in this case at the end of July we might want to have some left over and therefore we would want to budget for that we want to say okay I want to have some kind of cushion uh if I if we make 9793 units we also want to have some left over let's plan for that we're going to need some type of plan for that a problem's going to have to give us some type of plan for that so in this problem we have ending raw materials percent of next month's material so that we're saying 50% of next month's materials needed so what that is trying to say here is we're saying next month we're going to need 10 000 units of materials needed for production we want to have a general rule that we want to plan for ending inventory of 50% of next months that's going to be kind of our cushion rule that we will have so for July we're going to say this equals 10 000 that's what we're going to need next month times 0.5 enter we're going to we want 5 000 basically left in the warehouse as of the end of July in August we're going to say well that equals the 10 250 units that will need in production in September times 0.5 that's kind of the cushion that we're going to want in uh August and then we get to September and of course the question is well we only have the three months here we're only working on this quarter how am i going to get this number and the problem is going to have to give us that in some way they can either give us what the materials needed for production is so we can take page percent of it or they can just give us the number this this problem just gives us the number here so we see that raw materials and units they gave us this this number for uh September in this case so we're just going to plug in the 4 000 so then we can add those two up i'm just going to add up the 9793 that's the materials needed plus how much we want in the inventory we're going to do the same thing for August we're going to say we're going to produce the 10 000 the amount needed plus the budgeted ending inventory and of course you could copy and paste this i'm just going to calculate it three times we could see it September we want the 10 2002 that's how much is needed plus how much we want in the cushion for ending inventory so that would give us the total material requirements that's what we're going to need for example for July we're going to need 14 7 93 in materials in order to make the production you might think well that should be it but it would be it if we were starting from scratch there however this is not our first month of operations therefore we probably have some materials left over from last month so in in terms of now we're going to have to think about well what was in there last month and um and pull that out so if this is what we need to have then what do we already have we're going to subtract that out now for this one let's first think about August August we can think about because we're going to say well uh we're going to subtract out the beginning inventory for August must be the ending inventory for July so we just said that we wanted to end up with 5000 in ending inventory that's our plan therefore the beginning inventory for August will equal that 5000 and of course the same is true for September the the last month in our quarter we're going to say well uh if August is going to end with 5125 then September is going to begin with the 5125 and then of course we have this same issue where well what about July because we're only working on this quarter so once again the problem is going to have to give us that in some format in this case they give us the number right here so we're going to say in July it's going to be 4925 so we can subtract that out now so now we're going to say well this is how many units that are required in units not dollars and we're going to say minus what we already have that means that we're going to create or produce materials to be to be purchased we're going to buy these things it's going to be 9863 we're going to have to buy the materials obviously and this is going to be the 15 that's how many that are going to be needed this is how many 5000 that we plan to have on hand at the beginning therefore we're going to have to purchase another 10,000 125 and in September this is how many are needed minus the amount that we plan to have on hand that means we're going to have to purchase 9,125 so now we could add these across i'm going to come over here to the total and add those total units up by saying sum of the units that we need to purchase of the 9868 the 10125 the 9125 that will give us the 29118 and so that's how many units we're going to have we are of course going to have to pay dollars for these so in this case we're going to have to find out well how much is it going to cost per unit and again this could vary a lot depending on the types of units of course that we're that we're looking at here in this case if we scroll down we're going to need to find that of course in the problem somewhere and in this case we're going to say that the cost per unit is 21 21 dollars per unit so this in terms of dollars that's how many units we're going to have we're going to spend 21 dollars per unit and we're going to put that all the way across therefore we're going to multiply that out of course we have the number of units that we're going to have times the dollars per unit have so we're going to spend in dollars and and we could put the dollar signs down here as well so i could make this a dollar sign type of so like this and format it like so i'm going to get rid of the decimals and then i'm going to format paint that all the way across so these are dollars now that we're talking about and again you could copy and paste this across i'm just going to do the calculations so we can see them so we're going to take the materials that are going to be needed times the number of dollars for those materials per unit and that's the amount of dollars we're going to spend and then of course we do the same thing for september units needed times the dollars cost per unit and then if we want to do the total we could add them up this way which would give us the uh 6 11 474 and we also should be able to add it up this way or multiply it out this way the total units and that should also give us the one uh 6 11 474 and that will of course be the total cost of direct material purchases so remember how you want to think about this basically you want to think about how many units we're going to need to produce then uh you want to think about how much we want to have in ending inventory for a cushion that'll give us the units that we're going to need to have on hand then we want to subtract out from that the amount of materials already on hand and that'll give us how many we need to buy and then we just multiply that unit times the unit price to give us how much it's actually going to cost for these units