Question

X Ltd produces a line of jams. X’s estimated production of jars of jam for the fourth quarter of the year is as follows:

October	80,000
November	100,000
December	60,000

Each jar requires half a kilogram of berries. X prefers to buy the freshest berries, so its policy is to have just 10% of the following month’s production needs in ending inventory. On December 31, the company had 1000 kilograms. X’s pays $10 per kilogram of berries. It buys all berries on account and typically pays 50% of a month’s purchases in that month, and the remaining 50% the following month.

How much cash is paid for berry purchases in December?

1. $39,300
2. $49,200
3. $38,000
4. $29,000

Answer 1

Direct Material Budget
	Novemeber	December
Units to be Produced	100000	60000
Quantity of Material per unit	0.5	0.5
Raw Material for Production	50000	30000
Add : Desired Ending Inventory	3000	1000
Total Material Required	53000	31000
Less : Beginning Inventory	5000	3000
Material to be purchased	48000	28000
Cost per kg	$          10.00	$          10.00
Material Cost	$      480,000	$      280,000

Cash paid in December = $480000 x 50% + 280000 x 50% = $380000

There is some error of zeroes in question somewhere or options given.

So Answer can be C. $38,000