Question

Caspion Corporation makes and sells a product called a Miniwarp. One Miniwarp requires 2.5 kilograms of the raw material Jurislon. Budgeted production of Miniwarps for the next five months is as follows: August 22,600 units September 21,300 units October 22,700 units November 23,900 units December 23,600 units The company wants to maintain monthly ending inventories of Jurislon equal to 20% of the following month's production needs. On July 31, this requirement was not met since only 10,800 kilograms of Jurislon were on hand. The cost of Jurislon is $18.00 per kilogram. The company wants to prepare a Direct Materials Purchase Budget for the next five months. The total cost of Jurislon to be purchased in August is: Select one: A. $1,017,000 B. $1,014,300 C. $1,208,700 D. $1,839,600

Answer 1

Answer:

Cost of purchase= $1,014,300

Explanation:

Giving the following formula:

Production:

August= 22,600

September= 21,300

Ending inventory= 20% of the following month's production needs.

Beginning inventory= 10,800 kg

The cost of Jurislon is $18.00 per kilogram.

One Miniwarp requires 2.5 kilograms of the raw material Jurislon.

First, we need to calculate the purchases in kg required using the following formula:

Purchases= production + desired ending inventory - beginning inventory

Purchases= (2.5*22,600) + (2.5*21,300)*0.2 - 10,800

Purchases= 56,350kg

Now, the total cost of purchase:

Cost of purchase= 56,350*18= $1,014,300