Question

Alliance company budgets production of 37,000 units in January and 41,000 units in February. Each finished unit requires 4 pounds of raw material K that costs $2.50 per pound. Each month's ending raw materials inventory should equal 35% of the following month's budgeted materials. The January 1 inventory for this material is 51,800 pounds. What is the budgeted materials needed in pounds for January?

1) 109,200 pounds
2) 153,600 pounds
3) 148,000 pounds
4) 205,400 pounds
5) 96,200 pounds

Answer 1

In January, Alliance company must budget for 153,600 pounds of material K to meet the production needs of 37,000 units and the ending inventory requirement for the following month.

Step-by-step explanation:

The student is asking about budgeted materials needed for production in January. Given that each unit requires 4 pounds of material K and costs $2.50 per pound, with a production budget of 37,000 units, the raw material needed equates to 37,000 units * 4 pounds/unit. However, we must also account for the ending inventory requirement, which is 35% of the following month's budgeted materials. February's production is budgeted at 41,000 units, requiring 41,000 units * 4 pounds/unit = 164,000 pounds of material K, of which 35% should be in January's ending inventory.

To calculate January's budgeted materials, we start with February's inventory requirement: 164,000 pounds * 35% = 57,400 pounds. Since January's beginning inventory is 51,800 pounds, we need to adjust for the difference to meet January's ending inventory needs, which is 57,400 pounds - 51,800 pounds = 5,600 pounds. Finally, adding January's raw material needs (37,000 units * 4 pounds/unit = 148,000 pounds) and the additional inventory requirement, we get 148,000 pounds + 5,600 pounds = 153,600 pounds.