Zhang Industries budgets production of 300 units in June and 310 units in July. Each finished unit requires 4 pounds (lbs.) 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 in pounds for June.
A) 1,200 lbs.
B) 1,240 lbs.
C) 1,212 lbs.
D) 1,220 lbs.
E) 880 lbs.

Question

Quizplus · Accepted Answer

First, we need to calculate the total raw material K required for June and July. 
June: 300 units x 4 lbs per unit = 1,200 lbs
July: 310 units x 4 lbs per unit = 1,240 lbs

Next, we need to calculate the total ending inventory of raw materials for July. It should be 30% of the July budgeted production, which is 0.3 x 1,240 lbs = 372 lbs.

To determine the required purchases for June, we need to find the total raw material K needed for June and July, subtract the June 1 inventory, and add the July ending inventory to get the total purchases required.

Total raw material K required for June and July = 1,200 + 1,240 = 2,440 lbs 
June 1 inventory = 360 lbs 
July ending inventory = 372 lbs

Required purchases for June = (2,440 - 360 + 372) = 2,452 lbs

Therefore the budgeted purchases for raw material K in pounds for June is 1,212 lbs (2,452 lbs - June 1 inventory).

Zhang Industries Budgets Production of 300 Units in June and 310