Question

Cahuilla Corporation predicts the following sales in units for the coming four months:
April May June July
Sales in units 240 280 300 240
Each month's ending Finished Goods Inventory in units 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 direct material 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:_________.
a. 1,008 lbs.
b. 1,854 lbs.
c. 1,422 lbs.
d. 276 lbs.
e. 288 lbs.

Answer 1

Answer:

Purchases= 1,854 pounds

Explanation:

To calculate the direct material purchases, we need to use the following formula:

Purchases= production + desired ending inventory - beginning inventory

Production= 280*5 + (300*0.4)*5= 2,000 pounds

Desired ending inventory= [(300*0.6)*5* + (240*0.4)*5]*0.3= 414 pounds

beginning inventory= (280*0.4)*5= (560) pounds

Purchases= 1,854 pounds