Question

On January 1, Bandy Corp. plans to introduce a new product (i.e. no beginning inventory) called Handy Dandy. Management estimates sales of 35,000 units, 28,000 units and 40,000 units for January, February, and March, respectively. The planned selling price is $25.00. Each unit of Handy Dandy requires 2 pounds of direct material and 1 hour of direct labor. Management wants to end each month with a Handy Dandy inventory equal to 10% of the next month’s sales, and a direct material inventory equal to 5% of the next month’s production. Given that Bandy Corp. plans to have no inventory of direct materials on January 1, how many pounds of direct material does it plan to purchase in January?

Answer 1

78,520 pounds

Step-by-step explanation:

January:

Total required units = Expected unit sales + Desired ending finished goods units

= 35,000 + (28,000 × 10%)

= 35,000 + 2,800

= 37,800

Required production units = Total required units - Beginning finished goods units

= 37,800 - 0

= 37,800

February:

Total required units = Expected unit sales + Desired ending finished goods units

= 28,000 + (40,000 × 10%)

= 28,000 + 4,000

= 32,000

Required production units = Total required units - Beginning finished goods units

= 32,000 - 2,800

= 29,200

Therefore,

Total pounds needed for production:

= Units to be produced × Direct material per unit

= 37,800 × 2

= 75,600

Total materials required:

= Total pounds needed for production + Desired ending direct materials (in pounds)

= 75,600 + (29,200 × 2 × 5%)

= 75,600 + 2,920

= 78,520

Direct material purchases in January:

= Total materials required - Beginning direct materials

= 78,520 - 0

= 78,520 pounds