Question

Mountain Corporation manufactures cabinets but outsources the handles. Eight handles are needed for a cabinet, with assembly requiring 30 minutes of direct labor per unit. Ending finished goods inventory is planned to consist of 50% of projected unit sales for the next month, and ending handles inventory is planned to be 80% of the requirement for the next month’s projected unit output of finished goods.

Mountain’s projected unit sales:
October	4,600
November	5,000
December	4,200
January	6,000
Mountain’s ending inventories in units at September 30:
Finished goods	3,800
Handles	16,000

The number of handles Mountain should purchase in October is
A.	39,840
B.	76,800
C.	40,000
D.	36,800

Answer 1

	October	November
Budgeted sales in	4,600	5000
Add: Desired ending inventory (5,000*50%)	2,500	2100
Less: Beginning finished goods inventory	-3,800	-2,500
Budgeted production	3,300	4600
Handles required for production (3,300*8)	26,400	36,800
Add: Desired ending handle inventory (36,800*80%)	29,440
Less: Beginning handle inventory	-16,000
Number of Handle should be purchased	39,840

Answer is A. 39,840