Question

Cowles Corporation, Inc. makes and sells a single product, Product R. Three yards of Material K are needed to make one unit of Product R. Budgeted production of Product R for the next five months is as follows:

August 13,000 units

September 13,500 units

October 14,500 units

November 13,600 units

December 12,900 units

The company wants to maintain monthly ending inventories of Material K equal to 30% of the following month's production needs. On July 31, this requirement was not met because only 3,500 yards of Material K were on hand. The cost of Material K is $0.80 per yard. The company wants to prepare a Direct Materials Purchase Budget for the rest of the year.

The desired ending inventory of Material K for September is:

		12,750 yards
		12,500 yards
		13,050 yards
		12,150 yards

Answer 1

As per the company's policy, it maintains 30% of the inventory of material K required for the following month's production and one unit of product R requires 3 yards of material K.

The budgeted sales for the month of October = 14,500 units.

Therefore, the yards of material K required for October =14,500*3 =43,500 yars

Hence, the ending inventory of material K required for the month of September = 43,500*30% = 13,050 yards

Option c 13,050 yards is the correct answer.