The ending inventories of chemicals for each month are 36,135, 33,825 and 41,456 gallons. Also, the beginning inventory for January is 36,135 gallons.
In order to calculate the ending inventory of chemicals for the three months, we would create a table for planned production as follows:
January February March___
Units to be produced 43,800 41,000 50,250
Direct materials per unit 5.5 5.5 5.5 ___
Total direct materials 240,900 225,500 276,375
Since the company's policy requires ending inventories of raw materials for each month to be 15% of the next month's production needs, we have:
December = 15/100 × 240,900 = 36,135 gallons.
January = 15/100 × 225,500 = 33,825 gallons.
February = 15/100 × 276,375 = 41,456 gallons.
March = Nil.
Also, the beginning inventory of chemicals for January is given by December's ending inventory of 36,135 gallons.
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Complete 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:
January 43,800
February 41,000
March 50,250
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. 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?
