Materials purchase budget will tell the estimated amount which you will spend on buying of raw material which is used in production. Because, it is big amount, so you should forecast it in advance by using simple accounting techniques.

Simple formula of calculating material purchase budget

Estimated Cost of Production on the Basis of Production Budget

Add Estimated Closing Stock of Raw Material

Less Estimated Opening Stock of Raw Material

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Budgeted Value of Material Purchases

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To calculate estimated  cost of production is not difficult because you have made the wooden table production. You know the actual material and labour which is used in it. You can say for making 10 wooden tables, you have pay \$ 100 wood and \$ 200 labour.
So, on the basis, you can calculate the estimated cost of future production of wooden table.

Second, on the basis of past experience, you can estimated opening can closing stock of raw material.

For Example

For example, your estimated cost of production is \$ 10,000 of the month of  jan. 2015. At the end of jan., it is estimated, you will have closing raw material of \$ 5000. At the beginning of jan., opening raw material is \$2000. Calculated the budgeted value of material purchase.

By calculating material purchase budget, we can better plan of using our working capital instead of arranging working capital at the  time.

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Accounting Education
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