Question 34 The controller of Harrington Company estimates sales and production

Question

Question 34

The controller of Harrington Company estimates sales and production for the first four months of 2016 as follows:

January

February

March

April

Sales

$30,200 $42,900

$54,800

$27,800

Production in units

1,030 1,550 2,170 2,590

Sales are 40% cash and 60% on account, and 60% of credit sales are collected in the month of the sale. In the month after the sale, 40% of credit sales are collected. It takes 4 kg of direct material to produce a finished unit, and direct materials cost $5 per kg. All direct materials purchases are on account, and are paid as follows: 40% in the month of the purchase, 60% the following month. Ending direct materials inventory for each month is 40% of the next month’s production needs.

January’s beginning materials inventory is 1,648 kg. Suppose that both accounts receivable and accounts payable are zero at the beginning of January.

What are material purchases costs for February?

Material purchases for February $

Explanation / Answer

Calculate material purchase for february :

Material purchases for february (7192*5) = $35960

February Production units 1550 Raw material per unit 4 Raw material needed for production 6200 Add: Desired ending inventory (2170*4*40%) 3472 Total 9672 Less: Beginning inventory (6200*40%) -2480 Material purchase in february 7192 kg

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