Julie Finn is preparing the materials purchases budget for the first quarter.The production manager has provided the following production budget information: January - 60,000 units, February - 55,000 units, March - 50,000 units.Each unit requires 5 gallons of direct materials, and Julie wants to maintain an ending inventory equal to 15% of the next month's production needs.How many gallons will Julie budget to purchase in February?
A)271,250
B)275,000
C)282,500
D)312,500

Question

Quizplus · Accepted Answer

For February, the calculation is as follows: February's production needs are 55,000 units * 5 gallons = 275,000 gallons. March's production needs are 50,000 units * 5 gallons = 250,000 gallons. 15% of March's needs = 37,500 gallons. Desired ending inventory for February = 37,500 gallons. Total needs for February = Production needs + Desired ending inventory = 275,000 + 37,500 = 312,500 gallons. Subtract January's ending inventory (15% of February's production needs = 55,000 units * 5 gallons * 15% = 41,250 gallons) from total needs. February's purchase = 312,500 - 41,250 = 271,250 gallons.

Julie Finn Is Preparing the Materials Purchases Budget for the First