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

First, we need to calculate the required raw material for January and February:

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

Next, we need to calculate the total raw material needed for both months:

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

Then, we need to calculate the ending inventory for raw material K for January and February:

January ending inventory = 112,000 x 0.4 = 44,800 pounds
February ending inventory = 208,000 x 0.4 = 83,200 pounds

Now, we can calculate the total raw material needed for both months, including ending inventories:

Total raw material needed = 208,000 + 83,200 = 291,200 pounds

Finally, we can calculate the budgeted cost for raw material K in January:

Budgeted cost for raw material K = 96,000 pounds x $2.50/pound = $240,000

Therefore, the answer is choice C ($256,000 is incorrect because it does not take into account the ending inventory for raw material K in January).

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