July, the current operating month of XBL Corporation has reported less production, and it is determined that this month will end with more raw material inventory than budgeted. Based on the records, July's ending raw materials inventory will be 560 kilograms. The head of finance for the company has asked Joshua, the head of the purchasing department, to submit the department's direct materials purchases budget for August 2021. From the production budget, Joshua saw that budgeted production for August is determined to be 750 units, and that it would require 6 kilograms of raw material to produce one unit. The Company has a policy of maintaining a safety stock of 450 kilograms of raw material, and one kilogram of raw material costs the company $8. What will the budgeted cost of direct material (DM) to be purchased be for August 2021?
A) $4,390
B) $6,000
C) $35,120
D) $36,000

Question

Quizplus · Accepted Answer

Budgeted Quantity of DM to be Purchased = (Budgeted Units to be Produced × Budgeted Quantity of DM Needed per Unit) + Targeted Ending DM Inventory F1F1F1S1?F1F1F10 Beginning DM Inventory = (750 × 6) + 450 F1F1F1S1?F1F1F10 560 = 4,500 + 450 F1F1F1S1?F1F1F10560 = 4,390Kg
Budgeted Cost of DM to be Purchased = Budgeted Quantity of DM to be Purchased × Budgeted Cost of DM = 4,390 × $8 = $35,120

July, the Current Operating Month of XBL Corporation Has Reported