 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 last time we got to do this in order last time we did the sales budget 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 got to know how much we're going to sell basically and then we can think about how much we are going to 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 what we're gonna have to think about is how many units of materials does it take to produce one unit of product so and that's what we're going to take a look at within the raw materials production budget which must be done after we do the production budget so we're going to start we're going to start off with the production budget in units the numbers that we just calculated up here remember that we are working in the third quarter being July August and September and we're just going to pull these numbers down so I'm going to say this equals what we came up with in the production budget this is how many units that we believe we need to produce in 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 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 it's guitar we would need when we talk about how much wood 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 we're going to take that from the problem so the problem is 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 19 586 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 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 this is how many units we need to produce times 0.5 which is the amount of the material per unit and that will give us August September will be the 20,005 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 leftover and therefore we would want to budget for that we want to say okay I want to have some kind of cushion if I if we make 9793 units we also want to have some leftover let's plan for that we're going to need some type of plan for that a problem is 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 percent 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 percent of next month 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 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 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 we