Question

Cahuilla Corporation predicts the following sales in units for the coming four months: April May June JulySales in Units 240 280 300 240
Each month's ending Finished Goods Inventory should be 40% of the next month's sales. March 31 Finished Goods inventory is 96 units. A finished unit requires five pounds of direct material B at a cost of $2.00 per pound. The March 31 Raw Materials Inventory has 200 pounds of B. Each month's ending Raw Materials Inventory should be 30% of the following month's production needs. The budgeted purchases of pounds of direct material B during May should be:

Answer 1

Answer:

Budgeted purchases of pounds of direct material B during May = 1,440 pounds @ $2 per pound.

Purchase cost = $2,880

Explanation:

Units required to be produced in April = Units required to be sold April - Opening Inventory + 40% of Sales of May

= 240 - 96 + (280 X 40%) = 256 units

Total units of raw material to be purchased = 256 X 5 pounds = 1,280 pounds

Now for the month of May

Units required to be produced in May = Sales for the month - Opening Inventory + 40% of Sales of June

= 280 - 112 + (300 X 40%) = 288

For 288 units purchase = 288 X 5 pounds = 1,440 pounds

Purchase cost for the month = $1,440 X $2.00 = $2,880