Orr Company makes and sells a single product called a Bik. It takes six yards of
ID: 2405881 • Letter: O
Question
Orr Company makes and sells a single product called a Bik. It takes six yards of Material A to make one Bik. Budgeted production of Biks for the next three months is as follows: Budgeted Biks to be Produced February 23,000 units March 19,000 units April 28,000 units The company wants to maintain monthly ending inventories of Material A that are equal to 39% of the following month's production needs. The cost of Material A is $1.20 per yard. The company is in the process of preparing a direct materials purchases budget. Calculate the total cost of Material A to be purchased in February.
Explanation / Answer
Step-1:Calculation of monthly production needs of materials Month February March April Budgeted production 23,000 19,000 28,000 Materials per unit required 6 6 6 Total Materials Required 1,38,000 1,14,000 1,68,000 Step-2:Calculation of ending inventory of each month Month January February March Next Month's production needs of materials 1,38,000 1,14,000 1,68,000 Ending Inventory @ 39% 53,820 44,460 65,520 Step-3:Calculation of Cost of Material A February March April Materials required for production 1,38,000 1,14,000 1,68,000 Add: Ending Inventory 44,460 65,520 Less:Beginning inventory 53,820 44,460 Materials required to be purchased 1,28,640 1,35,060 Material cost per unit $ 1.20 $ 1.20 Total cost of Material purchased $ 1,54,368 $ 1,62,072 Thus, Total cost of Material A to be purchased in February $ 1,54,368
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