Question

Waunakee Metals expects sales for the year to be 100,000 units, with quarterly sales of 20%, 25%, 30%, and 25%, respectively. The sales price is expected to be $40. Management desires an ending finished goods inventory each quarter of 20% of the next quarter's sales volume. Each unit requires 3 kilograms of materials at a cost of $5 per kilogram. Management desires an ending raw materials inventory each quarter of 10% of the next quarter's production needs. What is the budgeted cost for materials to be purchased (in $) in Q2? $130,000 $433,500 $394,500 $390,000

Answer 1

Answer:

$394,500

Explanation:

expected quarterly sales of:

• first quarter 20,000 units
• second quarter 25,000 units
• third quarter 30,000 units
• fourth quarter 25,000 units

sales price $40 per unit

ending inventory of finished units = 20% of next quarter's sales volume

each unit requires 3 kgs of direct materials that cost $5 each kg

production needs for quarter 2 = quarter sales + ending inventory of finished units - beginning inventory of finished units = 25,000 units + (30,000 units x 20%) - (25,000 units x 20%) = 25,000 + 6,000 - 5,000 = 26,000 units

production needs for quarter 3 = 30,000 units + (25,000 units x 20%) - (30,000 units x 20%) = 30,000 + 5,000 - 6,000 = 29,000 units

         Materials Budget for Quarter 2

Units to be produced                          26,000

Direct materials per unit                                3

Total direct materials needed

for production                                      78,000

Ending direct materials                         8,700

(29,000 x 3 x 10%)

- Beginning direct materials                (7,800)

(26,000 x 3 x 10%)                                          

direct materials purchases                  78,900

cost per kg                                                   $5

cost of direct materials purchases   $394,500