Maxim Fasteners distributes giant binder clips that sell for $3 each.Maxim pays $1.20 to buy each clip.The company has $4,000 per month in fixed costs.Policies and other information follow:
-Inventory is maintained at the end of each month equal to 10% of the next month's projected sales in units.
-Purchases are paid 40% in the month acquired and the balance in the month after.
-All sales are on credit, and 30% are collect in the month of sale and 70% in the month after sale.
-Budgeted monthly sales in units for the first five months of 2017 are as follows:
$$\begin{array} { l l l }
\text { - January } & 6,000 \text { units } \
\text { - February } & 5,000 \text { units } \
\text { - March } & 7,000 \text { units } \
\text { - April } & 9,000 \text { units } \
\text { - May } & 8,000 \text { units }
\end{array}$$
Variable selling and administrative costs are $0.50 per clip.
How much is the budgeted purchase cost of inventory during March?

Question

Maxim Fasteners distributes giant binder clips that sell for $3 each.Maxim pays $1.20 to buy each clip.The company has $4,000 per month in fixed costs.Policies and other information follow:
-Inventory is maintained at the end of each month equal to 10% of the next month's projected sales in units.
-Purchases are paid 40% in the month acquired and the balance in the month after.
-All sales are on credit, and 30% are collect in the month of sale and 70% in the month after sale.
-Budgeted monthly sales in units for the first five months of 2017 are as follows:
$$\begin{array} { l l l } 
\text { - January } & 6,000 \text { units } \
\text { - February } & 5,000 \text { units } \
\text { - March } & 7,000 \text { units } \
\text { - April } & 9,000 \text { units } \
\text { - May } & 8,000 \text { units }
\end{array}$$
Variable selling and administrative costs are $0.50 per clip.
How much is the budgeted purchase cost of inventory during March?

Quizplus · Accepted Answer

To calculate the budgeted purchase cost of inventory during March, we need to determine the number of units Maxim Fasteners plans to purchase in March. According to the policy, inventory at the end of each month is maintained at 10% of the next month's projected sales in units. Therefore, the inventory at the end of March should be 10% of April's sales, which is 10% of 9,000 units = 900 units. To maintain this inventory level, Maxim must ensure that after March's sales, it has 900 units left for April. March's projected sales are 7,000 units. Therefore, the total units needed for March are sales plus ending inventory, which is 7,000 units (for sales) + 900 units (for ending inventory) = 7,900 units. However, we must also account for the beginning inventory for March, which is 10% of March's sales (since it's the ending inventory of February). 10% of 7,000 units = 700 units. Thus, the units to be purchased in March = total units needed - beginning inventory = 7,900 units - 700 units = 7,200 units.The cost to buy each clip is $1.20. Therefore, the budgeted purchase cost of inventory during March = 7,200 units * $1.20/unit = $8,640.

Maxim Fasteners Distributes Giant Binder Clips That Sell for $3