A company has a policy of having sufficient direct materials inventory on hand a

Question

A company has a policy of having sufficient direct materials inventory on hand at the end of each month equal to 20% of next month's budgeted production needs. The company has budgeted production of 30,000 units of product in June and 40,000 units in July. It takes 2 pounds of direct materials to produce one unit of product and 12,000 pounds of direct materials were on hand on May 31. How many pounds of direct materials should be purchased in the month of June?

a.                   56,000 pounds

b.                  60,000 pounds

c.                   76,000 pounds

d.                 64,000 pounds

Explanation / Answer

Hi,

Please find the answer as follows:

Material Purchased in June = 30000*2 (Production for June) + 40000*.20*2 (Ending Inventory for June) - 12000 (Opening Inventory for June) = 64000

Option D (64000) is the correct answer.

Thanks.

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