Hannah Banana Bakers makes chocolate chip cookies for cafe restaurants. In June, Hannah Banana purchased $15,500 of materials. On June 1, the materials inventory was $3,700. On June 30, $1,600 of materials remained in materials inventory.
Required:
1. What is the cost of the direct materials used in production during June?
2. Briefly explain why there is a difference between the cost of direct materials that were purchased during the month and the cost of direct materials that were used in production during the month?

The difference between the cost of raw material purchased and used during June is because there was an opening inventory of raw material that is also used in production during the month of June which increased the cost of raw material used in production.

Explanation:

1.

The cost of materials used in production in the month can be calculated as follows,

Consumption = Opening Inventory + Purchases - Closing Inventory

Consumption = 3700 + 15500 - 1600

Consumption = $17600

2.

The purchases made in the month of June were not for the sole purpose of use in the month of June. There was already an opening inventory of raw material. The business made further purchases of $15500 anticipating the demand for the material during June. However, at the end some of the inventory is left and the difference between the cost of raw material purchased and used during June is because there was an opening inventory of raw material that is also used in production during the month of June which increased the cost of raw material used in production.