Question

Caspion Corporation makes and sells a product called a Miniwarp. One Miniwarp requires 2.5 kilograms of the raw material Jurislon. Budgeted production of Miniwarps for the next five months is as follows:

August	23,500	units
September	22,200	units
October	23,600	units
November	24,800	units
December	24,500	units

The company wants to maintain monthly ending inventories of Jurislon equal to 25% of the following month's production needs. On July 31, this requirement was not met since only 11,700 kilograms of Jurislon were on hand. The cost of Jurislon is $27 per kilogram. The company wants to prepare a Direct Materials Purchase Budget for the next five months.

The total cost of Jurislon to be purchased in August is:

Multiple Choice

$2,785,050

$1,644,975

$1,960,875

$1,586,250

Answer 1

The correct option is $1,644,975
Required production in units	23,500
Raw materials required per unit (kilograms)	2.50
Raw materials needed for production	58,750
Add desired ending raw materials inventory	13,875
(25% * 22,200 * 2.5)
Total raw materials needs	72,625
Less beginning raw materials inventory	11,700
Required purchases of raw material in units	60,925
Cost per kilogram	27
Required purchases	1,644,975