Question

Fact Pattern:

Paradise Company budgets on an annual basis for its fiscal year. The following beginning and ending inventory levels (in units) are planned for the fiscal year of July 1 through June 30:

	July 1	June 30
Direct material*	40,000	50,000
Work-in-process	10,000	20,000
Finished goods	80,000	50,000

* Two units of direct material are needed to produce each unit of finished product.

Question

If 500,000 complete units were to be manufactured during the fiscal year by Paradise Company, the number of units of direct materials to be purchased is

• A.1,000,000 units.

• B.1,020,000 units.

• C.1,010,000 units.

• D.990,000 units.

Answer 1

Answer: C.1,010,000 units

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Working notes
Quantity of finished goods to be produced                                           (a)	500,000
Quantity of direct materials needed per unit of finished good               (b)	2
Total quantity of direct materials needed for production                       (a x b)	1,000,000
Plus: Desired ending inventory of direct materials	50,000
Total [1,000,000 + 50,000]	1,050,000
Less: Beginning inventory of direct materials	40,000
Direct materials to be purchased [1,050,000 - 40,000]	1,010,000