Question

Alliance Company budgets production of 27,000 units in January and 31,000 units in the 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 37,800 pounds. What is the budgeted materials needed in pounds for January

Answer 1

Instructions are below.

Step-by-step explanation:

Giving the following information:

Production:

January= 27,000 units

February= 31,000 units

Each finished unit requires 4 pounds of raw material

Estimated cost= $2.50 per pound.

Desired ending inventory= 35% of the following month's budgeted materials.

Beginning inventory= 37,800 pounds.

To calculate the purchase of material needed, we need to use the following formula:

Purchases= sales + desired ending inventory - beginning inventory

Direct material budget (in pounds)

Production= (27,000*4)= 108,000

Desired ending inventory= (31,000*4)*0.35= 43,400

Beginning inventory= (37,800)

Total= 113,600

Total direct material cost= 113,600*2.5= $284,000