Question

Production of Product B has been budgeted at 2,000, 1,800, 1,600, and 1,700 units for October, November, December, and January, respectively. One unit of Product B requires 2 pounds of raw material at $5 per pound. Required ending inventory for raw materials is 25% of the next month's demand. Raw material inventory at 9/30 is 1,000 pounds. 70% of material purchases is paid in the month of purchase, with the remaining 30% paid in the month after purchase. The A/P balance at 9/30 is $5,400. How many pounds of material is budgeted to be purchased during the last quarter of the year?

a.9,950

b.

10,500

c.

10,650

d.

10,800

Budgeted payment of A/P during the last quarter is?

a.$48,375

b.

$53,250

c.

$53,775

d.	$58,650 Budgeted ending balance of A/P at 12/31 is a.$4,063 b. $4,875 c. $5,400 d. $11,375

Answer 1

Solution 1:

Raw Material Budget - Last quarter
Particulars	October	November	December	Total
Budgeted Production Units	2000	1800	1600	5400
Material needed per unit (In pound)	2	2	2	2
Material needed for budgeted production	4000	3600	3200	10800
Add: Budgeted ending inventory (25% of next month material requirements)	900	800	850	850
Total material requirements	4900	4400	4050	11650
Less: Beginning inventory	1000	900	800	1000
Materials to be purchased (Pounds)	3900	3500	3250	10650

Hence option c is correct.

Solution 2:

Budgeted payments
Particulars	October	November	December	Total
Materials to be purchased (Pounds)	3900	3500	3250	10650
Material cost per unit	$5.00	$5.00	$5.00	$5.00
Budgeted purchases (In dollars)	$19,500.00	$17,500.00	$16,250.00	$53,250.00
Payments in the month of purchase (70%)	$13,650.00	$12,250.00	$11,375.00	$37,275.00
Payment in next month of purchase (30%)	$5,400.00	$5,850.00	$5,250.00	$16,500.00
Total payments	$19,050.00	$18,100.00	$16,625.00	$53,775.00

Hence option c is correct.

Solution 3:

Budgeted ending balance of A/P on Dec 31 = Budgeted purchases for december * 30% = $16,250*30% = $4,875

Hence option b is correct.