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Homework answers / question archive / Assume that a company expects to produce 11,200, 12,200, and 14,200 units of finished goods in January, February, and March, respectively

Assume that a company expects to produce 11,200, 12,200, and 14,200 units of finished goods in January, February, and March, respectively

Accounting

Assume that a company expects to produce 11,200, 12,200, and 14,200 units of finished goods in January, February, and March, respectively. Each unit of finished goods requires 4 pounds of raw material and each pound of raw material costs $4.00. The company always maintains an ending raw materials inventory equal to 30% of next month’s production needs. What is the amount of expected raw materials purchases for February?

Multiple Choice

  • $204,800

  • $153,600

  • $195,200

  • $167,360

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Purchase Budget for February
Production units 12,200
Pounds per unit 4
Total pounds needed for production          48,800
Ending raw materials inventory 17,040
Total raw materials inventory needed 65,840
Beginning raw materials inventory -14,640
Purchases pounds 51,200
Cost per pound $4
Cost of purchases $204,800

Raw materials purchases for February = $204,800

First option is correct.

Working:

Ending raw materials for January = Total pounds needed for production in February x 30%

= 48,800 x 30%

= 14,640

Ending raw materials inventory for January will be the beginning raw materials inventory for February.

March production = 14,200 units

Pounds needed for production in March = 14,200 x 4

= 56,800

Ending raw materials inventory for February =  Pounds needed for production in March x 30%

= 56,800 x 30%

= 17,040

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