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EA5.
LO 7.2Sunrise Poles manufactures hiking poles and is planning on producing 4,000 units in March and 3,700 in April. Each pole requires a half pound of material, which costs $1.20 per pound. The company’s policy is to have enough material on hand to equal 10% of the next month’s production needs and to maintain a finished goods inventory equal to 25% of the next month’s production needs. What is the budgeted cost of purchases for March?

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Answer:

Total cost= $3,121.5

Explanation:

Giving the following information:

Sunrise Poles manufacture hiking poles and is planning on producing 4,000 units in March and 3,700 in April. Each pole requires a half-pound of material, which costs $1.20 per pound. The company's policy is to have enough material on hand to equal 10% of the next month's production needs and to maintain a finished goods inventory equal to 25% of the next month's production needs.

We need to calculate the production required for March:

Sales of March= 4,000 units

Ending inventory= (3,700*0.25)= 925 units

Now, we can calculate the material required:

Direct material:

For March= 4925*0.5= 2,462.5 pounds

Ending inventory= (2,775 units*0.5)*0.1= 138.75 pounds

Total= 2,601.25 pounds

Total cost= 2,601.25*$1.20= $3,121.5

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