X Company has 2,000 pounds of raw material in its beginning inventory. Its produ

Question

X Company has 2,000 pounds of raw material in its beginning inventory. Its production budget shows required production of 4,000 units in January and 5,000 units in February. Three pounds of raw materials are needed for each unit produced and the projected cost of the raw material is $6 per pound. Management wants to each every month with raw material equal to 20% of the materials needed for the next month's production. Compute the cost (in dollars) of raw materials needed to be purchased in January.

Explanation / Answer

Compute the cost (in dollars) of raw materials needed to be purchased in January.

Raw materials needed to be purchased in january = $78000

January Production (units) 4000 Raw material per unit 3 Raw material needed to production 12000 Add: Desired ending inventory (5000*3*20%) 3000 Total needs 15000 Less: Beginning inventory -2000 Raw material purchase (qty) 13000 Raw material per pound 6 Raw material purchase (cost) 78000

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