Question

Answer the following questions using the information below:

Meridian Industries manufactures and sells two models of watches Prime and Luxuria. It expects to sell 3,000 units of Prime and 1,000 units of Luxuria in 2016.The following estimates are given for 2016:

Prime Luxuria
Selling price $200 $500
Direct materials 20 50
Direct labor 40 150
Manufacturing overhead 40 100

Meridian had an inventory of 200 units of Prime and 75 units of Luxuria at the end of 2015. It has decided that as a measure to counter stock outages it will maintain ending inventory of 350 units of Prime and 200 units of Luxuria.

Each Luxuria watch requires one unit of Crimpson and has to be imported at a cost of $10. There were 100 units of Crimpson in stock at the end of 2015.The management does not want to have any stock of Crimpson at the end of 2016.

*40) What is the amount budgeted for purchase of Crimpson in 2016?*
A) $31,500
B) $10,250
C) $30,500
D) $10,000

Answer 1

The amount budgeted for the purchase of Crimpson in 2016 is $10,000.

Step-by-step explanation:

To determine the amount budgeted for the purchase of Crimpson in 2016, we need to calculate the number of Luxuria watches that will be produced and then multiply it by the cost of importing one unit of Crimpson.

Given that Meridian Industries expects to sell 1,000 units of Luxuria in 2016 and that each Luxuria watch requires one unit of Crimpson, we can calculate the total number of units of Crimpson required: 1,000 units of Luxuria * 1 unit of Crimpson = 1,000 units of Crimpson.

Since the management does not want to have any stock of Crimpson at the end of 2016, the amount budgeted for the purchase of Crimpson in 2016 would be the cost of importing 1,000 units of Crimpson: 1,000 units of Crimpson * $10 per unit = $10,000.