Complete Question:
The Company has prepared a sales budget of 42,000 finished units for a 3-month period. The company has an inventory of 13,000 units of finished goods on hand at December 31 and has a target finished goods inventory of 15,000 units at the end of the succeeding quarter. It takes 3 gallons of direct materials to make one unit of finished product. The company has inventory of 61,000 gallons of direct materials at December 31 and has a target ending inventory of 53,000 gallons at the end of the succeeding quarter. How many gallons of direct materials should Company purchase during the 3 months ending March 31? Select the labels and enter the amounts to calculate the direct materials (gallons) to be purchased.
Answer:
The Company
Direct materials (gallons) to be purchased = 124,000 gallons.
Step-by-step explanation:
Data and Calculations:
Budgeted Sales = 42,000 units
Beginning Finished unit Inventory = 13,000 units
Target Ending Inventory = 15,000 units
Production = Budgeted Sales + Ending Inventory - Beginning Inventory
= 42,000 + 15,000 - 13,000
= 44,000 units
To produce 44,000 units require 3 gallons each, i.e. a total of 132,000 (44,000 * 3) gallons
There are 61,000 gallons of materials in Beginning Inventory.
Desired Ending Inventory of materials = 53,000 gallons
Therefore, Purchases of direct materials = Required Production Materials + Ending Inventory (materials) - Beginning Inventory (materials)
= 132,000 + 53,000 - 61,000
= 124,000