Cahuilla Corporation predicts the following sales in units for the coming four months: Sales in Units
$$\begin{array} { c c c c }
\text { April } & \text { May } & \text { June } & \text { July } \
240 & 280 & 300 & 240
\end{array}$$ Each month's ending Finished Goods Inventory should be 40% of the next month's sales. March 31 finished goods inventory is 96 units. A finished unit requires five pounds of direct material B at a cost of $2.00 per pound. The March 31 Raw Materials Inventory has 200 pounds of B. Each month's ending Raw Materials Inventory should be 30% of the following month's production needs.
- The budgeted purchases of pounds of direct material B during May should be:
A) 1,008 lbs.
B) 1,854 lbs.
C) 1,422 lbs.
D) 288 lbs.
E) 276 lbs.

Question

Cahuilla Corporation predicts the following sales in units for the coming four months: Sales in Units
 $$\begin{array} { c c c c } 
\text { April } & \text { May } & \text { June } & \text { July } \
240 & 280 & 300 & 240
\end{array}$$ Each month's ending Finished Goods Inventory should be 40% of the next month's sales. March 31 finished goods inventory is 96 units. A finished unit requires five pounds of direct material B at a cost of $2.00 per pound. The March 31 Raw Materials Inventory has 200 pounds of B. Each month's ending Raw Materials Inventory should be 30% of the following month's production needs. 
-  The budgeted purchases of pounds of direct material B during May should be:
A) 1,008 lbs.
B) 1,854 lbs.
C) 1,422 lbs.
D) 288 lbs.
E) 276 lbs.

Quizplus · Accepted Answer

Step 1: Calculate the total units of production for each month:
- April: (1 + 0.4) x 120 = 168 units
- May: (1 + 0.4) x 144 = 201.6 units (rounded to 202 units)
- June: (1 + 0.4) x 220 = 308 units
- July: (1 + 0.4) x 192 = 268.8 units (rounded to 269 units)

Step 2: Calculate the total pounds of direct material B required for production:
- April: 168 units x 5 lbs per unit = 840 lbs
- May: 202 units x 5 lbs per unit = 1010 lbs
- June: 308 units x 5 lbs per unit = 1540 lbs
- July: 269 units x 5 lbs per unit = 1345 lbs

Step 3: Calculate the required ending inventory of raw materials B for each month:
- April: 30% of 1010 lbs = 303 lbs
- May: 30% of 1540 lbs = 462 lbs
- June: 30% of 1345 lbs = 404 lbs
- July: 30% of 0 lbs (since no production in August) = 0 lbs

Step 4: Calculate the required purchases of raw materials B for each month:
- April: 303 lbs + 200 lbs (Beginning raw materials inventory) - 480 lbs (March ending inventory) = 23 lbs
- May: 462 lbs + 23 lbs (April required purchases) - 1010 lbs (April ending inventory) = 475 lbs
- June: 404 lbs + 475 lbs (May required purchases) - 1540 lbs (May ending inventory) = 339 lbs
- July: 0 lbs + 339 lbs (June required purchases) - 1345 lbs (June ending inventory) = -1006 lbs (no purchases needed)

Note: In July, the company already has more than enough raw materials B in inventory to cover the production needs, so no additional purchases are required.

Therefore, the budgeted purchases of pounds of direct material B during May should be 1,422 lbs (Choice C).

Cahuilla Corporation Predicts the Following Sales in Units for the Coming