Question

Patrick Inc. makes industrial solvents sold in 5-gallon drum containers. Planned production in units for the first 3 months of the coming year is: January43,800 February41,000 March50,250 Each drum requires 5.5 gallons of chemicals and one plastic drum container. Company policy requires that ending inventories of raw materials for each month be 15% of the next month's production needs. That policy was met for the ending inventory of December in the prior year. The cost of one gallon of chemicals is $2.00. The cost of one drum is $1.60. Required: 1. Calculate the ending inventory of chemicals in gallons for December of the prior year, and for January and February. What is the beginning inventory of chemicals for January

Answer 1

Ending inventory (December) = $72,270

Ending inventory (January) = $67,650

Ending inventory (February) = $82,912.50

Beginning Inventory (January ) = $72,270

Step-by-step explanation:

The ending inventory of chemicals in gallons :

Note : Based on Company policy, this was determined as 15% of next month's production needs.

Ending inventory (December) = 43,800 × 15% × 5.5 gallons × $2.00

= $72,270

Ending inventory (January) = 41,000 × 15% × 5.5 gallons × $2.00

= $67,650

Ending inventory (February) = 50,250 × 15% × 5.5 gallons × $2.00

= $82,912.50

The beginning inventory of chemicals for January is equal to the Ending inventory for December that is $72,270