Matz Company expects to sell 24,000 units of finished goods over the next 6-month period. The company has 10,000 units on hand and its managers want to have 14,000 units on hand at the end of the period. To produce one unit of finished product, two units of direct materials are needed. Matz has 100,000 units of direct material on hand and has budgeted for an ending inventory of 110,000 units. What is the amount of direct material to be purchased (in units)?
A)38,000
B)46,000
C)66,000
D)18,000

Question

Quizplus · Accepted Answer

To determine the amount of direct materials needed for production, we first calculate the total units of finished goods needed: 
24,000 (expected sales) + 14,000 (desired ending inventory) - 10,000 (current inventory) = 28,000 total units needed for production.

Since two units of direct materials are needed to produce one unit of finished product, we multiply 28,000 by 2 and get 56,000 units of direct materials needed for production.

To determine the amount of direct materials to be purchased, we subtract the beginning inventory of direct materials (100,000 units) from the budgeted ending inventory (110,000 units) and add the direct materials needed for production (56,000 units): 
110,000 (ending inventory) - 100,000 (beginning inventory) + 56,000 (direct materials needed) = 66,000 units of direct materials to be purchased.

Therefore, the answer is choice C, 66,000.

Matz Company Expects to Sell 24,000 Units of Finished Goods