Archer Company had budgeted sales of 30,000 units in April, 40,000 units in May,

Question

Archer Company had budgeted sales of 30,000 units in April, 40,000 units in May, and 60,000 units in June. The company has 6,000 units of finished goods on hand at April 1. The company requires an ending finished goods inventory equal to 20% of the following month's sales.

Each finished goods unit requires 3 pounds of direct material. A total of 24,000 pounds were on hand on April 1, and the company requires materials on hand at the end of the month equal to 25% of the following month's budgeted finished goods sales.

How many pounds of direct material should the company plan to purchase in April?

a) 96,000
b) 102,000
c) 105,000
d) 90,000

Explanation / Answer

   b) 102,000

Direct material for April     30,000 x 3 pounds               90,000 pounds
Add : Ending FG Inventory (8,000 - 6,0000) x 3 pounds   6,000 pounds
Add : Ending DM Inventory 40,000 x 25% x 3 pounds     30,000 pounds
Total Direct materials required                                   126,000 pounds
Less : Beginning DM inventory                                      24,000 pounds
Direct materials to be purchased                            102,000 pounds

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