Sevenbergen Corporation makes one product and has provided the following information to help prepare the master budget for the next four months of operations: Credit sales are collected:40% in the month of the sale60% in the following monthRaw materials purchases are paid:30% in the month of purchase70% in the following monthThe ending finished goods inventory should equal 20% of the following month's sales. The ending raw materials inventory should equal 30% of the following month's raw materials production needs.If 41,920 pounds of raw materials are required for production in September, then the budgeted cost of raw material purchases for August is closest to:

Question

Sevenbergen Corporation makes one product and has provided the following information to help prepare the master budget for the next four months of operations:  Credit sales are collected:40% in the month of the sale60% in the following monthRaw materials purchases are paid:30% in the month of purchase70% in the following monthThe ending finished goods inventory should equal 20% of the following month's sales. The ending raw materials inventory should equal 30% of the following month's raw materials production needs.If 41,920 pounds of raw materials are required for production in September, then the budgeted cost of raw material purchases for August is closest to:

Quizplus · Accepted Answer

To determine the budgeted cost of raw material purchases for August, we need to calculate the raw material production needs for September, because purchases for September will be made in August.

Since the ending inventory for raw materials should equal 30% of the following month's production needs, we can calculate the September production needs as follows:

September Production Needs = 41,920 pounds / (1 - 0.3) 
September Production Needs = 59,886 pounds

Therefore, the budgeted cost of raw material purchases for August is:

August Raw Material Purchases = 30% x 41,920 + 70% x 59,886 
August Raw Material Purchases = $12,576 + $41,136 
August Raw Material Purchases = $53,712

The closest answer choice is B) $43,712, which is off by $10,000.

Sevenbergen Corporation Makes One Product and Has Provided the Following