Question

Alliance Company budgets production of 23,000 units in January and 27,000 units in the February. Each finished unit requires 4 pounds of raw material K that costs $2.00 per pound. Each month's ending raw materials inventory should equal 30% of the following month's budgeted materials. The January 1 inventory for this material is 27,600 pounds. What is the budgeted materials needed in pounds for January?

Answer 1

FFinal answer:

The Alliance Company needs to budget for 96,800 pounds of raw material K for the month of January, considering the required production units, the cost per pound, and inventory requirements.

Step-by-step explanation:

The question requires the calculation of budgeted materials needed for production in January for Alliance Company, given that each finished unit of product requires 4 pounds of raw material K, which costs $2.00 per pound. We also know that the company budgets the production of 23,000 units in January and wants to have ending inventory equal to 30% of the next month's material requirements. Furthermore, with an inventory of 27,600 pounds available on January 1, this must be factored into the total material requirements calculation.

Calculation

February's production is 27,000 units \(\times\) 4 pounds/unit = 108,000 pounds needed. Then, 30% of February's material, which equals 108,000 pounds \(\times\) 30% = 32,400 pounds, must be the ending inventory for January. January's total material needed for production is January's production of 23,000 units \(\times\) 4 pounds/unit = 92,000 pounds. Adding the desired ending inventory for January, we get 92,000 pounds + 32,400 pounds = 124,400 pounds. Taking into account the initial inventory of 27,600 pounds, the budgeted materials needed for January are 124,400 pounds - 27,600 pounds = 96,800 pounds.