A sporting goods manufacturer budgets production of 45,000 pairs of ski boots in the first quarter and 30,000 pairs in the second quarter of the upcoming year. Each pair of boots require 2 kg of a key raw material. The company aims to end each quarter with ending raw materials inventory equal to 20% of the following quarter's material needs. Beginning inventory for this material is 18,000 kg and the cost per kg is $8.
-What is the budgeted materials purchases cost for the first quarter?

Question

A sporting goods manufacturer budgets production of 45,000 pairs of ski boots in the first quarter and 30,000 pairs in the second quarter of the upcoming year. Each pair of boots require 2 kg of a key raw material. The company aims to end each quarter with ending raw materials inventory equal to 20% of the following quarter's material needs. Beginning inventory for this material is 18,000 kg and the cost per kg is $8. 
-What is the budgeted materials purchases cost for the first quarter?

Quizplus · Accepted Answer

Total material needed in the first quarter = 45,000 pairs x 2 kg/pair = 90,000 kg
Total material needed in the second quarter = 30,000 pairs x 2 kg/pair = 60,000 kg
Total material needed for the first half of the year = 90,000 kg + 60,000 kg = 150,000 kg

Ending inventory for the first quarter = 20% of 60,000 kg = 12,000 kg
Total material needed for the first quarter = 90,000 kg + 60,000 kg x 20% = 102,000 kg
Material purchases = Total material needed - Beginning inventory = 102,000 kg - 18,000 kg = 84,000 kg

Budgeted materials purchases cost = Material purchases x Cost per kg
= 84,000 kg x $8/kg
= $672,000

Therefore, the best choice is C, $672,000.

A Sporting Goods Manufacturer Budgets Production of 45,000 Pairs of Ski