Zhang Industries 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 cost of purchases for raw material K for June.
A) $4,400.
B) $6,000.
C) $6,200.
D) $6,060.
E) $6,100.

Question

Quizplus · Accepted Answer

To determine the budgeted cost of purchases for raw material K for June, we need to calculate the total amount of raw material K required for June and subtract the amount in inventory on June 1.

The total amount of raw material K required for June is 300 units * 4 pounds per unit = 1,200 pounds.

The ending inventory for June is 30% of July's budgeted production, or 0.3 * 310 units * 4 pounds per unit = 372 pounds.

Therefore, the amount of raw material K that must be purchased in June is:

1,200 pounds required - 360 pounds beginning inventory + 372 pounds ending inventory = 1,212 pounds.

The budgeted cost of these purchases is 1,212 pounds * $5 per pound = $6,060.

Therefore, the correct answer is D) $6,060.

Zhang Industries Budgets Production of 300 Units in June and 310