Question

The Howell Company has prepared a sales budget of 40 comma 000 finished units for a​ 3-month period. The company has an inventory of 11 comma 000 units of finished goods on hand at December 31 and has a target finished goods inventory of 13 comma 000 units at the end of the succeeding quarter. It takes 3 gallons of direct materials to make one unit of finished product. The company has inventory of 61 comma 000 gallons of direct materials at December 31 and has a target ending inventory of 58 comma 000 gallons at the end of the succeeding quarter. How many gallons of direct materials should Howell Company purchase during the 3 months ending March​ 31?

Answer 1

Answer:

Purchases=  123,000 gallons

Explanation:

Giving the following information:

Sales:

40,000 finished units for 3 months.

Finished goods inventory:

Beginning inventory= 11,000 units

Desired ending inventory= 13,000 units

It takes 3 gallons of direct materials to make one unit of finished product.

Direct material inventory:

Beginning inventory= 61,000 gallons

Desired ending invenyory= 58,000 gallons

First, we need to calculate the production for the period:

Production= sales + desired ending inventory - beginning inventory

Production= 40,000 + 13,000 - 11,000

Production= 42,000 units

Now, we can calculate the purchases:

Purchases= production + desired ending inventory - beginning inventory

Purchases= 42,000*3 + 58,000 - 61,000

Purchases=  123,000 gallons