Direct Materials Usage Budget

The number of units to be produced (from the Production Budget) is used to calculate the quantities of direct materials required, and that is used along with the expected costs for direct materials to develop the Direct Materials Usage Budget. The quantities of direct materials to be used are affected by the quality of the direct materials purchased as well as the efficiency of the production employees in converting them into finished products.

For each product, the company has a bill of materials that specifies which materials and how much of each are to be used in manufacturing the product, the sequence in which the materials are to be used, and in what department each process is to be completed. Those bills of materials are used to develop the Direct Materials Usage Budget.

The Direct Materials Usage Budget will also be affected by production needs created by any new capital projects scheduled to begin production during the year.