Question

Alliance Company budgets production of 35,000 units in January and 39,000 units in the February. Each finished unit requires 4 pounds of raw material K that costs $3.50 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 42,000 pounds. What is the budgeted materials cost for January?

Answer 1

$506,800

Step-by-step explanation:

Material cost is the cost of raw material used in the production for the period.

First we need to calculate the purchases in the January.

January

+Production (35,000 units x 4 pounds) 140,000 pounds

-Beginning Inventory 42,000 pound

+Ending Inventory 46,800 pounds

(39,000 x 30% x 4 pounds)

Material used 144,800 pounds

Cost of Material = Material used x Rate of material

Cost of Material = 144,800 x $3.50 per pound

Cost of Material = $506,800

Answer 2

$506,800

Step-by-step explanation:

The calculation of budgeted materials cost is shown below:-

For computing the budgeted materials cost first we need to find out the total materials for production and materials to be purchased which is here below:-

Total materials for production = Budgeted production × Pounds of raw material per unit

= 35,000 × 4

= 140,000

Materials to be purchased = Total materials for production + Ending raw materials inventory - January 1 inventory

= 140,000 + (39,000 × 4 × 30%) - 42,000

= 140,000 + 46,800 - 42,000

= 186,800 - 42,000

= 144,800

Budgeted materials cost for January = Materials to be purchased × Cost per pound

= 144,800 × $3.50

= $506,800