Greyland Inc. manufactures a product that uses 2 ounces of raw material. Greyland's raw material inventory at December 31, 2009 is 21,000 ounces; its desired raw material inventory at December 31, 2010 is 18,000 ounces. Greyland's budgeted production for 2010 is 1,000,000 units of finished product. Each ounce of raw material costs $1.80. What amount of total purchases should Greyland budget for 2010?

Question

Quizplus · Accepted Answer

To calculate the total purchases, first determine the total raw material needed for production: 1,000,000 units x 2 ounces/unit = 2,000,000 ounces. Then, adjust for inventory changes: 2,000,000 ounces + (18,000 - 21,000) ounces = 1,997,000 ounces needed to purchase. Finally, multiply by the cost per ounce: 1,997,000 ounces x $1.80/ounce = $3,594,600.