Question

A sporting goods manufacturer budgets production of 57,000 pairs of ski boots in the first quarter and 48,000 pairs in the second quarter of the upcoming year. Each pair of boots require 2 kg of a key raw material. The company aims to end each quarter with ending raw materials inventory equal to 25% of the following quarter's material needs. Beginning inventory for this material is 28,500 kg and the cost per kg is $7. What is the budgeted materials purchases cost for the first quarter?

Answer 1

The budgeted material purchase cost for the first quarter would be $626,500

Step-by-step explanation:

In the first quarter , the consumption of material for pair of ski would be equal to ,

= production required x raw materials required per unit

= 57,000 x 2

= 114,000 kg

In the second quarter , the consumption of materials for pair of ski would be equal to ,

= production required x raw materials required per unit

= 48,000 x 2

= 96,000 kg

As per the question company expects to end raw material inventory equal to 25% of the next quarters material needs , so

= 25% x consumption requirement of second quarter

= 25% x 96,000

= 24,000 kg

given that the beginning inventory for his material is 28,500 and we have taken out closing inventory ( 24,000 kg ) , so with this purchase can be taken out

Consumption = Opening inventory + Purchase - Closing inventory

94,000 = 28,500 + Purchase - 24,000

Purchase = 89,500 kg

Now multiplying this purchase with the cost per kg we will get the budgeted material purchase cost

= 89,500 x 7

= $626,500

Answer 2

Cost of purchase for first quarter = $766,500

Step-by-step explanation:

Total production of current quarter = 57,000 pairs

Raw material required for above = 57,000 X 2 kg per pair = 114,000 kg

Less: Opening inventory of raw material 28,500 kg = 114,000 - 28,500 = 85,500 kg required for quarter 1

Also provided that closing inventory shall be 25% of total raw material required for next quarter.

Raw material required in second quarter = 48,000 pairs X 2 kg each = 96,000 kg

25% of above = 96,000 X 25% = 24,000 kg

Total raw material to be purchased in current quarter that is first quarter = 85,500 kg + 24,000 kg = 109,500 kg

Rate not provided assumed to be same as of opening inventory that is $7 per kg, therefore cost of purchase for first quarter = 109,500 kg X $7 = $766,500