Question

In: Accounting

Use the following data to determine how many units should be produced Dirty Hands, Inc. sells...

Use the following data to determine how many units should be produced

Dirty Hands, Inc. sells soap. The sales budget is 800,000 units. Management estimates that there will be 100,000 units in beginning inventory and 125,000 units in ending inventory.

Based on the production budget in problem above what would be the budgeted cost of direct material if it takes 7 oz of material to make a bar of soap and each oz costs $0.15.

Expert Solution

Budgeted sales = 800000 units

Opening Inventory = 100000 units

Ending inventory = 125000 units

The formula for ending inventory is Opening Inventory + Units produced - Sales units = Ending Inventory

i.e 100000 + Units produced - 800000 = 125000 units

Therefore units to be produced is 125000+800000-100000 = 825000 units

So Budgeted Production units is 825000 units

Now one unit require 7 oz of material.

So total Oz requires to manufacture 825000 units is 825000 * 7 oz/unit = 5775000 oz

Cost of each Oz is $0.15

Therefore budgeted cost of direct material will be Budgeted oz required * cost per oz

It will be 5775000* $0.15 = $866250

So 825000 units should be produced.

Budgeted cost of direct material is $866250

ekkarill92 answered 2 years ago

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