Question

Assume a company’s sales budget for April and May is 35,000 units and 37,000 units, respectively. Its production budget for the same two months is 32,000 units and 33,000 units, respectively. Each unit of finished goods required 4 pounds of raw materials. The company always maintains raw materials inventory equal to 10% of the following months production needs. Also assume the company pays $2.20 per pound of raw material. It always pays for 50% of its raw material purchases in the month of purchase and the remainder in the following month. The accounts payable balance on March 31st is $135,000. What would be the accounts payable balance at the end of April? Multiple Choice $146,240 $141,240 $131,990 $144,740

Answer 1

Ans.

A/1	B	C	D
2		April	May
3	Sale Budget (units)	35,000	37,000
4
5	Production Budget (units)	32,000	33,000
6
7	Material Usage Budget
8	Material Consumed (Pounds)	128,000.00	132,000.00
9
10	Material Purchase Budget
11	Material Consumed (Pounds)	128,000.00	132,000.00
12	Add : Closing Inventory of Raw Material	13,200.00	N.A.
13	Less : Beginning Inventory of Raw Material	(12,800.00)	(13,200.00)
14	Material Purchased	128,400.00
15
16
17	Material Price Budget
18	Material Purchased (Pounds)	128,400.00
19	Price per Pound	$               2.20
20	Material Cost	$ 282,480.00

Formulas

A/1	B	C	D
2		April	May
3	Sale Budget (units)	35000	37000
4
5	Production Budget (units)	32000	33000
6
7	Material Usage Budget
8	Material Consumed (Pounds)	=32000*4	=33000*4
9
10	Material Purchase Budget
11	Material Consumed (Pounds)	=32000*4	=33000*4
12	Add : Closing Inventory of Raw Material	=+D11*10%	N.A.
13	Less : Beginning Inventory of Raw Material	=-C11*10%	=-C12
14	Material Purchased	=SUM(C11:C13)
15
16
17	Material Price Budget
18	Material Purchased (Pounds)	128400
19	Price per Pound	2.2
20	Material Cost	=+C18*C19

Amount Paid in April = $ 135,000 + ( $ 282,480 * 50%) = $ 276,240

Accounts Payable at the end of April =  50% of its raw material purchases of this month = $ 282,480 * 50% = $ 141,240