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 total cost of Material K to be purchased in August is:

		$47,650
		$38,120
		$30,350
		$24,280

Answer 1

Answer : $38,120

Calculation:

Total Yards of Material K required in August

Particulars	Yards
Number of Yards required for August production (13,000 units * 3 pounds)	39,000
Add: Desired Ending Inventory (13,500 units * 3 pounds * 30%)	12,150
Less: Beginning Inventory of Material K	3,500
Total Yards of Material K required in August	47,650

Total cost of material K to be purchased in August = 47,650 pounds * $0.80 per yard = $38,120

All the best...