Grafton budgets production of 300 units in June and 310 units in July. Each finished unit requires 4 pounds of raw material K, which costs $5 per pound. Each month's ending inventory of raw materials should be 30% of the following month's budgeted production. The June 1 raw materials inventory has 360 pounds of raw material K. Compute budgeted purchases for raw material K for June.

Question

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For June, the production needs are 300 units * 4 pounds/unit = 1,200 pounds. The desired ending inventory for June is 30% of July's production needs, which is 310 units * 4 pounds/unit * 30% = 372 pounds. The beginning inventory for June is 360 pounds. The total needed for June is the sum of June's production needs and the desired ending inventory for June, minus the beginning inventory, which is 1,200 + 372 - 360 = 1,212 pounds.

Grafton Budgets Production of 300 Units in June and 310