Balmforth Products, Inc. makes and sells a single product called a Bik. It takes

Question

Balmforth Products, Inc. makes and sells a single product called a Bik. It takes three yards of Material A to make one Bik. Budgeted production of Biks for the next five months is as follows: February 15,500 units March 17,000 units April 13,400 units May 14,100 units June 16,000 units The company wants to maintain monthly ending inventories of Material A equal to 25% of the following month's production needs. On January 31, this target had not been attained since only 3,000 yards of Material A were on hand. The cost of Material A is $0.80 per yard. The company wants to prepare a Direct Materials Purchases Budget. The total cost of Material A to be purchased in February is:

$19,000

$47,400

$45,000

$37,200

Explanation / Answer

The cost of material to be purchased : $ 45,000

See workings below:

February March Production 15500 17000 3 yard material for one unit Material required for production 46500 51000 Opening Inventory (January closing given) (30 % of current month production) 3000 12750 Closing inventory (25 % of next month requirement) 12750 Purchase of February (Required for production+ Closing 56250 inventory - opening inventory) Rate per yard 0.8 The cost of material to be purchased 45000

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