Question

Caspion Corporation makes and sells a product called a Miniwarp. One Miniwarp requires 6.5 kilograms of the raw material Jurislon. Budgeted production of Miniwarps for the next five months is as follows:
August 23,000 units
September 21,700 units
October 23,100 units
November 24,300 units
December 24,000 units
The company wants to maintain monthly ending inventories of Jurislon equal to 20% of the following month's production needs. On July 31, this requirement was not met since only 11,200 kilograms of Jurislon were on hand. The cost of Jurislon is $22 per kilogram. The company wants to prepare a Direct Materials Purchase Budget for the next five months.
The total cost of Jurislon to be purchased in August is:_______.

Answer 1

Assuming the company wants to prepare a Direct Materials Purchase Budget for the next five months. The total cost of Jurislon to be purchased in August is:$3,663,220.

Total cost

Using this formula

Total cost=(Desired ending inventory+ Required for production-Ending inventory)×Rate per kilogram

Total cost=[(21,700×6.5×20%)+(23,000×6.5)-11,200]×$22 per kilogram

Total cost=(28,210+149,500-11,200)×$22 per kilogram

Total cost=166,510×$22 per kilogram

Total cost=$3,663,220

Inconclusion the total cost of Jurislon to be purchased in August is:$3,663,220.

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