Direct materials budget
In one sentenceA plan of the raw material quantities needed for planned production, how much of them must be bought, and their cost, taking into account materials inventory at the start and end of the period.
Simply put
You start from the production budget: number of units × material needed per unit = quantity needed for production.
Then add the materials inventory required at the end of the period and subtract what exists at its start to get the purchase quantity, and multiply it by the expected price.
Worked example
A detergent factory plans to produce 5,000 bottles. Each bottle needs 2 kg of a raw material priced at 12 SAR per kg. It wants to end the period with 1,500 kg and currently has 1,000 kg.
Quantity needed for production5,000 × 2 = 10,000 kg
+ Closing inventory − opening inventory1,500 − 1,000 = 500 kg
Purchase quantity10,000 + 500 = 10,500 kg
Cost of materials to be purchased10,500 × 12 = 126,000 SAR
Formula: (Production units × material quantity per unit + closing inventory − opening inventory) × price
Don't confuse it with
Purchases budgetThe purchases budget in a trading business is built on sales; the materials budget in a factory is built on production.