Buckeye Inc.uses the sales forecast to plan production.The company produces a glow-in-the-dark cup called "Lights-Out" one month in advance of the forecasted sale.The January sales forecast of 20 units of these cups will be scheduled for December production.However,the company also notes that sales forecasts and actual sales can differ,and the company has a policy of having 20% in inventory to accommodate sales above forecast.Raw materials for Lights-Out are acquired the month ahead (in this case,November).Wages are paid in the current month of production (December).Utilities are paid a month after production (January)and shipping is paid a month after the sale (two months after production,February).Finally,an inventory count reveals that there are currently 4 units on hand above the projected sales for November (at the start of November when the raw material order is placed).Unit production costs are $40 for raw materials,$20 for wages,$10 for utilities,and $5 for shipping.Determine the amounts of cash outflows for December's production.
A)Raw material of $800 paid in November,Wages of $400 paid in December,Utilities of $200 paid in January,Shipping of $100 paid in February
B)Raw material of $800 paid in November,Wages of $400 paid in December,Utilities of $100 paid in January,Shipping of $100 paid in February
C)Raw material of $800 paid in November,Wages of $400 paid in December,Utilities of $200 paid in January,Shipping of $200 paid in February
D)Raw material of $400 paid in November,Wages of $800 paid in December,Utilities of $200 paid in January,Shipping of $100 paid in February

Question

Quizplus · Accepted Answer

For December's production, cash outflows include raw materials paid in November ($800 for 20 units at $40 each), wages paid in December ($400 for 20 units at $20 each), utilities paid in January ($200 for 20 units at $10 each), and shipping paid in February ($100 for 20 units at $5 each).