North Line Company manufactures a product requiring 0.5 ounces of platinum per unit. The cost of platinum is approximately $360 per ounce; the company maintains an ending platinum inventory equal to 10% of the following month's production usage. The following data were taken from the most recent quarterly production budget: $\begin{array} { | l | c | c | c | }
\hline & \text { July } & \text { August } & \text { September } \
\hline \text { Planned production in units } & 1,000 & 1,100 & 980 \
\hline
\end{array}$ The cost of platinum to be purchased to support August production is:

Question

North Line Company manufactures a product requiring 0.5 ounces of platinum per unit. The cost of platinum is approximately $360 per ounce; the company maintains an ending platinum inventory equal to 10% of the following month's production usage. The following data were taken from the most recent quarterly production budget: $\begin{array} { | l | c | c | c | } 
\hline & \text { July } & \text { August } & \text { September } \
\hline \text { Planned production in units } & 1,000 & 1,100 & 980 \
\hline
\end{array}$ The cost of platinum to be purchased to support August production is:

Quizplus · Accepted Answer

The correct answer is A because the cost of platinum to be purchased to support August production is $195,840. This is calculated as follows:Platinum needed for August production = 1,100 units * 0.5 ounces per unit = 550 ouncesPlatinum needed for ending inventory = 980 units * 0.5 ounces per unit * 10% = 49 ouncesTotal platinum needed = 550 ounces + 49 ounces = 599 ouncesCost of platinum = 599 ounces * $360 per ounce = $215,640Less: Beginning inventory = 1,000 units * 0.5 ounces per unit * 10% = 50 ouncesCost of platinum to be purchased = $215,640 - $20,800 = $195,840

North Line Company Manufactures a Product Requiring 0 The Cost of Platinum to Be Purchased to Support August