Direct materials budget

Direct materials budget plans two related figures once the production budget is set: quantity needed for production and quantity to purchase. These differ because of raw-material inventory targets.

Also known asmaterials budget

ByHoang TruongUpdated June 30, 2026

FrameworkMaster budgeting

See it move

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A four-step flow diagram moves from a production plan of 42,000 jars to material usage of 10,500 kilograms (at 0.25 kg per jar), then adjusts for the planned change in raw-material stock — adding closing stock and deducting opening stock — to reach a purchase quantity of 10,900 kilograms, which is multiplied by €0.80 per kilogram to give a purchase cost of €8,720. The diagram illustrates why the quantity purchased differs from the quantity used whenever raw-material inventory levels are not held constant.

Where it fits

SubjectManagerial AccountingAdvancedTopicBudgeting & the Master BudgetAdvanced

The formula

LaTeX

M_{\text{req}} = Q_{\text{prod}} \times m

Variables

$Q_{p} r o d$: Planned production units
$m$: Standard material quantity per output unit (units of material per unit produced)

Step 1 — total material needed to fulfil the production budget

LaTeX

P = M_{\text{req}} + C_{\text{RM}} - O_{\text{RM}}

Variables

$M_{r} e q$: Material required for production
$C_{R} M$: Target closing raw-material inventory
$O_{R} M$: Opening raw-material inventory

Step 2 — quantity to purchase, adjusted for inventory policy

LaTeX

\text{Purchase budget} = P \times p

Variables

$P$: Planned purchase quantity
$p$: Purchase price per unit of material (€ per unit)

Converts the purchase quantity into the monetary purchase budget