Question

Preparing a Direct Materials Purchases Budget 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.
Required:
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? Round your answers to the nearest whole gallon.

Answer 1

Explanation:

The computation of the ending inventory and the beginning inventory is shown below:

Ending inventory is as follows

December = 438,00 units × 5.5 gallons × 15% =

                 = 36,135 units

January =  41,000× 5.5 gallons × 15%

              = 33,825 units

February = 50,250 units × 5.5 gallons × 15%

               = 41,457 units

And, the beginning inventory for January is December ending inventory i.e 36,135 units