Question

Cahuilla Corporation predicts the following sales in units for the coming four months: April May June July Sales in Units 410 450 470 410 Each month's ending Finished Goods Inventory should be 30% of the next month's sales. March 31 Finished Goods inventory is 123 units. A finished unit requires 5 pounds of direct material B at a cost of $2.00 per pound. The March 31 Raw Materials Inventory has 260 pounds of B. Each month's ending Raw Materials Inventory should be 20% of the following month's production needs. The budgeted purchases of pounds of direct material B during May should be: Multiple Choice

2,276 lbs.

452 lbs.

2,732 lbs.

1,824 lbs.

456 lbs.

Answer 1

ANS:

The budgeted purchases of pounds of direct material B during May should be as fallows

May month Production=sales+closeing inventory-opening inventory

450+470*30%-450*30%=456units

May month Purchase of Direct Materials=Production requirment+closeing inventory of Material-Opening inventory of Mterial

production requirement for the month of MAY=456units*5pounds
=2,280pounds

closeing inventory=june month production needs*20%

470+410*30%-470*30%=452units*5pounds*20%

=452pounds

Opening inventory=April month closeing inventory

i.e may month production needs*20%

2,280pounds*20%=456pounds

Purchases=2,280+452-456
i.e 2,276lbs