Question

Alliance Company’s budgets production of 34,000 units in January and 38,000 units in the February. Each finished unit requires 3 pounds of raw material K that costs $3.00 per pound. Each month’s ending raw materials inventory should equal 40% of the following month’s budgeted materials. The January 1 inventory for this material is 40,800 pounds. What is the budgeted materials cost for January?

Answer 1

Budgeted materials cost for January = $320400

Explanation;

First of all let’s calculate required raw materials to be purchased in January;

Materials needed for production of 34000 units (34000 * 3)	102000
Add: Required ending raw materials (38000 * 3) * 0.40	45600
Less: Beginning raw materials	(40800)
Raw materials to be purchased in January	106800 pounds

Now, let’s calculate budgeted materials cost for January;

Budgeted raw materials * price per pound

(106800 * $3) = $320400