Alliance Company's budgets production of 24,000 units in January and 28,000 units in the February. Each finished unit requires 4 pounds of raw material K that costs $2.50 per pound. Each month's ending raw materials inventory should equal 40% of the following month's budgeted materials. The January 1 inventory for this material is 38,400 pounds. What is the budgeted materials cost for January?

Question

Quizplus · Accepted Answer

The budgeted materials cost for January can be calculated as follows:

Raw material required for January = 24,000 units x 4 pounds/unit = 96,000 pounds

Raw material required for February = 28,000 units x 4 pounds/unit = 112,000 pounds

Total raw material required = 96,000 pounds + 112,000 pounds = 208,000 pounds

Ending inventory for February = 40% x 112,000 pounds = 44,800 pounds

Raw material needed for production = Total raw material required - Ending inventory for February

Raw material needed for production = 208,000 pounds - 44,800 pounds = 163,200 pounds

Total materials cost for January = Raw material needed for production x Cost per pound

Total materials cost for January = 163,200 pounds x $2.50 per pound = $256,000

Therefore, the budgeted materials cost for January is $256,000, which corresponds to option C.

Alliance Company's Budgets Production of 24,000 Units in January and 28,000