Donnelly Manufacturing
Donnelly Manufacturing sells cedar birdhouses. The company has prepared the following forecast for the third quarter of 2009:
$$\begin{array} { l r }
\text { July } & 5000 \text { units } \
\text { August } & 6000 \text { units } \
\text { September } & 10000 \text { units }
\end{array}$$
Inventory at 30 June 2009 was budgeted at 1000 units. Management would like the desired quantity of finished goods inventory at the end of each month to be equal to 20 per cent of next month’s budgeted unit sales. October’s sales are projected to be 12 000 units.
Each completed unit of finished product requires 3 square feet of cedar at a cost of $1.50 per square foot.
-The company has determined that it needs 10 per cent of next month's raw material needs on hand at the end of each month.
The cost of the direct material that should be purchased in August is:
A) $32 940
B) $21 480
C) $30 600
D) $35 280

Question

Donnelly Manufacturing
Donnelly Manufacturing sells cedar birdhouses. The company has prepared the following forecast for the third quarter of 2009:
$$\begin{array} { l r } 
\text { July } & 5000 \text { units } \
\text { August } & 6000 \text { units } \
\text { September } & 10000 \text { units }
\end{array}$$
Inventory at 30 June 2009 was budgeted at 1000 units. Management would like the desired quantity of finished goods inventory at the end of each month to be equal to 20 per cent of next month’s budgeted unit sales. October’s sales are projected to be 12 000 units.
Each completed unit of finished product requires 3 square feet of cedar at a cost of $1.50 per square foot.
-The company has determined that it needs 10 per cent of next month's raw material needs on hand at the end of each month.
The cost of the direct material that should be purchased in August is:
A) $32 940
B) $21 480
C) $30 600
D) $35 280

Quizplus · Accepted Answer

The correct answer is A.The company needs 10% of next month's raw material needs on hand at the end of each month. So, the raw material needed for September is 10% of 10000 units = 1000 units. The raw material needed for August is 10% of 6000 units = 600 units. The total raw material needed for August is 1000 + 600 = 1600 units. The cost of the raw material is $1.50 per square foot. So, the cost of the raw material needed for August is 1600 units * 3 square feet per unit * $1.50 per square foot = $7200. The cost of the direct material that should be purchased in August is $7200.

Donnelly Manufacturing Donnelly Manufacturing Sells Cedar Birdhouses Inventory at 30 June 2009 Was Budgeted at 1000 Units

Donnelly Manufacturing
Donnelly Manufacturing Sells Cedar Birdhouses Inventory at 30 June 2009 Was Budgeted at 1000 Units