Figure 1
Projected sales for Sommers, Inc., for next year and beginning and ending inventory data are as follows:
The selling price is £40 per unit. Each unit requires four pounds of material which costs £6 per pound. The beginning inventory of raw materials is 12,000 pounds. The company wants to have 3,000 pounds of material in inventory at the end of the year.
-Refer to Figure 1. Sommers' budgeted total purchase cost of direct materials would be
A) £1,350,000
B) £1,242,000
C) £1,206,000
D) £1,296,000

Question

Quizplus · Accepted Answer

To calculate the budgeted total purchase cost of direct materials, we need to find the total amount of materials required for production and subtract the beginning and desired ending inventory of materials.

Total materials required:
Projected sales x Material required per unit = 90,000 x 4 = 360,000 pounds

Add desired ending inventory:
360,000 + 3,000 = 363,000 pounds

Subtract beginning inventory:
363,000 - 12,000 = 351,000 pounds

Multiply by cost per pound:
351,000 x £6 = £2,106,000

Therefore, the budgeted total purchase cost of direct materials is £1,242,000 (b), which is the closest answer option.

Figure 1 Projected Sales for Sommers, Inc., for Next Year and Beginning