Margo Company manufactures a product that takes 20 pounds of material to produce. Margo's
Budgeted sales are 2,000 units in August and 2,500 units in September. Margo's ending finished
Goods inventory is budgeted to be 20% of the following month's sales. How much was Margo's
Budgeted materials purchases for the month of August, assuming that the material costs $3.75 per
Pound and the raw materials inventory quantity is not budgeted to change?

Question

Quizplus · Accepted Answer

To calculate Margo's budgeted materials purchases for August, first determine the production needs. August sales are 2,000 units, and September sales are 2,500 units. The ending finished goods inventory for August is 20% of September's sales, which is 500 units (20% of 2,500). Therefore, total units needed for August are sales (2,000 units) plus ending inventory (500 units) = 2,500 units. Since each unit requires 20 pounds of material, the total pounds of material needed are 2,500 units * 20 pounds/unit = 50,000 pounds. At $3.75 per pound, the cost of materials is 50,000 pounds * $3.75/pound = $187,500. However, since the raw materials inventory quantity is not budgeted to change, we only consider the materials needed for production, making the correct answer $187,500.

Margo Company Manufactures a Product That Takes 20 Pounds of Material