Alliance Company budgets production of 27,000 units in January and 31,000 units in the February. Each finished unit requires 4 pounds of raw material K that costs $2.50 per pound. Each month's ending raw materials inventory should equal 35% of the following month's budgeted materials. The January 1 inventory for this material is 37,800 pounds. What is the budgeted materials needed in pounds for January

Question

Mills

Business

7 January, 06:03

Alliance Company budgets production of 27,000 units in January and 31,000 units in the February. Each finished unit requires 4 pounds of raw material K that costs $2.50 per pound. Each month's ending raw materials inventory should equal 35% of the following month's budgeted materials. The January 1 inventory for this material is 37,800 pounds. What is the budgeted materials needed in pounds for January

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Skye Hawkins · Answer 1

Instructions are below.

Explanation:

Giving the following information:

Production:

January = 27,000 units

February = 31,000 units

Each finished unit requires 4 pounds of raw material

Estimated cost = $2.50 per pound.

Desired ending inventory = 35% of the following month's budgeted materials.

Beginning inventory = 37,800 pounds.

To calculate the purchase of material needed, we need to use the following formula:

Purchases = sales + desired ending inventory - beginning inventory

Direct material budget (in pounds)

Production = (27,000*4) = 108,000

Desired ending inventory = (31,000*4) * 0.35 = 43,400

Beginning inventory = (37,800)

Total = 113,600

Total direct material cost = 113,600*2.5 = $284,000