Margo Company manufactures a product that takes 20 pounds of direct materials to produce. Margo'sudgeted 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 direct materials purchases for the month of August, assuming that the direct material costs $3.75 per pound and the direct materials inventory quantity is NOT budgeted to change?

Question

Quizplus · Accepted Answer

To calculate Margo's budgeted direct 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). To meet August sales and inventory requirements, Margo needs to produce 2,500 units in August (2,000 for sales + 500 for ending inventory). Each unit requires 20 pounds of direct materials, so the total pounds needed are 50,000 pounds (2,500 units * 20 pounds). At $3.75 per pound, the total cost is $187,500 (50,000 pounds * $3.75). However, the question specifies that the direct materials inventory quantity is not budgeted to change, implying that the calculation should focus solely on the direct materials needed for production, not adjustments for inventory changes. Therefore, the calculation provided directly leads to the cost of materials needed for production, which is $187,500, but the correct interpretation based on the question's specification about inventory not changing was to find the cost of materials needed for August's production, which was incorrectly concluded here. The correct approach involves calculating the materials needed for August's production and sales plans, considering the inventory policy, but the final answer should reflect the cost of materials to meet those specific plans without additional inventory adjustments.

Margo Company Manufactures a Product That Takes 20 Pounds of Direct