Question

Cappin’ manufactures personalized baseball caps for companies. The company has production levels budgeted for this period of 5,000 caps. Each cap requires 1 yard of fabric to manufacture. The company has a policy of always having 300 yards of fabric on hand at the end of the period, in case of excess demand. Last period orders were higher than expected, so the company ended the period with only 175 yards of fabric on hand. Fabric costs $8/yard, and Cappin’ has an agreement to pay their supplier 75% of the cost of purchases in the month bought, and the remainder in the month following. The Accounts Payable balance at the beginning of the period is $15,000.

What is the budgeted amount of cash to be paid for raw materials this month? Show your solutions and answer.

Answer 1

Budgetdd Purchase:
Budgeted production			5000
Multiply: Raw material requirement per unit	1
Total Production requirement		5000
Add: Ending inventory of RM		300
Total requirement			5300
Less: Begining inventory		175
Budgeted purchase units		5125
Multiply: Cost per unit		8
Budgetd purchase in $		41,000
Cash paid for this month:
Beginning Accounts payable balance		15,000
Add: Payment for current month purchase		30750	(41,000*75%)
Cash paid for this month:			45,750
Answer is $45,750.