Assume that March’s budgeted sales are 10,000 units. Beginning finished goods in

Question

Assume that March’s budgeted sales are 10,000 units. Beginning finished goods inventory contained 1,000 units, and 1,500 units are desired to be on hand at month end. Conversely, beginning direct materials inventory consisted of 1,500 units, but only 1,000 units are desired to be on hand at month end. Each finished unit requires 2 units of raw materials and 1 hour of direct labor. Raw materials cost $6 per unit, direct labor costs $9 per hour, factory overhead is applied at $7 per hour, and the company has no work in process. How much will raw material purchases amount to for March?

Explanation / Answer

Production of finished goods = Units sold +Desired ending inventory - Beginning Inventory

                                         = 10000 + 1500 -1000

                                         = 10500 units

Raw material needed for production = 10500 * 2 = 21000 units

Raw material purchase = Raw material needed for production + ending inventory -beginning inventory

                                   = 21000 + 1000 - 1500

                                   = 20500 units

Purchase cost = 20500 *6

                  = $ 123,000

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.