Question

Dustman Manufacturing Corporation's most recent production budget indicates the following required production: January February March April Required production (units) 4,000 6,000 5,500 5,000 Each unit of finished product requires 3 feet of raw materials. The company maintains raw materials inventory equal to 2,000 feet plus 10% of the next month's expected production needs. The raw material used in Dustman Manufacturing Corporation's product costs $4.50 per foot. What is the value of raw material that Dustman Manufacturing should plan on purchasing for the month of February

Answer 1

Answer:

Purchase budget = $80,325

Explanation:

Usage budget for the month of February=  6,000×  3  = 18,000 feet

Closing inventory for the month of February

=2000 + 10% × March usage budget

= 2000 + 10% × (5,500×  3)  =   3,650 feet

Opening inventory for February = closing inventory for January

closing inventory for January

=2000 + 10% × February usage budget

= 2000 + 10% × (6,000×  3) = 3800 feet

Raw material purchase budget for February

= Usage + closing inventory - opening inventory

= 18,000 + 3,650-3800

=17850 feets

Budget in $ = 17850 feet × 4.50

                     = $80,325