Question

Nevis Motors manufactures a product requiring 0.5 ounces of platinum per unit. The cost of platinum is approximately $360 per ounce; the company maintains an ending platinum inventory equal to 10% of the following month's production usage. The following data were taken from the most recent quarterly production budget: July August September Planned production in units 1,000 1,100 980 The cost of platinum to be purchased to support August production is: Multiple Choice $195,840. Correct $198,000. $200,160. $391,680. None of the answers is correct.

Answer 1

$195,840

Step-by-step explanation:

A purchases budget is is usually prepared to determine material requirements to meet the production targets.

Nevis Motors

Materials Purchases Budget for the Month of August

Material requirement for production (1,100 x 0.5) 550

Add Budgeted Closing Materials Inventory (980 x 0.5 x 10%) 49

Total Required Materials 599

Less Budgeted Opening Materials Inventory (1,100 x 0.5 x 10%) (55)

Budgeted Purchases 544

Cost per ounce $360

Total Budgeted Purchases cost $195,840