Question

5) Presented is selected second quarter budget data for the Arnold Company

	Sales
April	20,000 units
May	30,000 units
June	36,000 units

Additional information:

- Each unit of finished product requires three pounds of raw materials.

- Arnold maintains ending finishing goods inventories equal to 20% of the following month's budgeted sales.

- Arnold maintains raw materials inventories equal to 25% of the following month's budgeted production.

- April 1 inventories are in line with Arnold's inventory policy.

Arnold's budgeted purchases (in pounds) for April is:

a) 66,000 pounds

b) 72,900 pounds

c) 89,400 pounds

d) None of the above

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6) Presented is additional information for the Arnold Company (refer to the information above):

- Price per pound of raw materials: $20

- Direct labor per unit of finished product: 0.40 hours at $25 per hour

- Total monthly factory overhead: $200,000 + $10 per direct labor hour

Arnold's total manufacturing cost budget for April is:

a) $880,000

b) $1,680,000

c) $1,828,000

d) $1,966,000

Answer 1

(5): Correct Option is 72900 pounds

Calculation of Budgeted Purchase :

Required for current Production (3 times * Production) = (3 * 22000) = 66000 pounds

Month Sales unit = Current Budgeted sales + Closing stock - Opening Stock

= 20000 + (20% * 30000) - (20% * 20000)

= 20000 + 6000 - 4000

= 22000 units

Desired Closing Inventory (25% of following month production) = (25% * 93600) = 23400 pounds

Following Month sales units = May Budgeted sales + Closing stock - Opening Stock

= 30000 + (20% * 36000) - (20% * 30000)

= 30000 + 7200 - 6000

= 31200 units

Following Month Production = 31200 * 3 = 93600 pounds

Desire Opening Inventory (25% * Current Productio) = (25% * 66000) = 16500 pounds

Therefore April Budgeted Purchases = Required for current Production + Desired Closing Inventory - Desire Opening Inventory

= 66000 + 23400 - 16500

= 72900 pounds

(6.) Correct option is 1966000

Total Manufacturing Cost = Raw Material Cost + Labour Cost + Manufacturing Overhead

= (72900 * 20) + (0.40 * 22000 * 25) + (10 * 0.40 * 22000) + 200000

= 1458000 + 220000 + 88000 + 200000

= 1966000