Budgeting Basics and Beyond

9.4. Materials Purchase Budget Illustrated

The next example illustrates a typical method of budgeting the quantities and cost of raw materials to be purchased. Assume that there are three classes of materials: X, Y, and Z.

Class X—Materials for which a definite quantity and monthly distribution is established in advance. Exhibit 9.2 presents standard unit information by month.

Class Y—Material items for which definite quantities are established for the entire budget period but for which no definite monthly distribution program is established. Exhibit 9.3 presents unit information for items. Here the distribution to months of the total cost of $4,031 must be made on the basis of past experience of budgeted production factors such as machine hours. Exhibit 9.4 presents percentage distribution information.

Class Z—Miscellaneous material items that are grouped together and budgeted only in terms of total dollar purchases for the total budget period. The distribution to months is again made on the basis of past experience or production factors. The following figures may be assumed, based on budgeted machine hours (cost of Class Z materials is assumed to be $5 per hour).

Exhibit 9.5 presents budgeted productive hours. Note that total purchases required for Class Z materials amount ...