Cowles Corporation Inc., makes and sells a single product, Product R. Three yards of Material K are needed to make one unit of Product R. Budgeted production of Product R for the next five months is as follows: The company wants to maintain monthly ending inventories of Material K equal to 30% of the following month's production needs. On July 31, this requirement was not met because only 3,500 yards of Material K were on hand. The cost of Material K is $0.80 per yard. The company wants to prepare a Direct Materials Purchase Budget for the rest of the year. The desired ending inventory of Material K for September is:
A)12,750 yards
B)12,500 yards
C)13,050 yards
D)12,150 yards

Question

Cowles Corporation Inc., makes and sells a single product, Product R. Three yards of Material K are needed to make one unit of Product R. Budgeted production of Product R for the next five months is as follows:  The company wants to maintain monthly ending inventories of Material K equal to 30% of the following month's production needs. On July 31, this requirement was not met because only 3,500 yards of Material K were on hand. The cost of Material K is $0.80 per yard. The company wants to prepare a Direct Materials Purchase Budget for the rest of the year. The desired ending inventory of Material K for September is:
A)12,750 yards 
B)12,500 yards 
C)13,050 yards 
D)12,150 yards

Quizplus · Accepted Answer

To determine the desired ending inventory of Material K for September, we need to first calculate the required production needs for October:

October production needs = 9,000 units x 3 yards per unit = 27,000 yards

Then, we need to calculate the desired ending inventory for September:

September ending inventory = October production needs x 30% = 27,000 x 0.3 = 8,100 yards

Next, we need to calculate the total material required for September:

September material required = October production needs + September ending inventory - August ending inventory
September material required = 27,000 + 8,100 - (9,000 x 0.3) = 27,000 + 8,100 - 2,700 = 32,400 yards

Finally, we can calculate the direct materials to be purchased for September:

September direct materials to be purchased = September material required - September beginning inventory
September direct materials to be purchased = 32,400 - 3,500 = 28,900 yards

Therefore, the desired ending inventory of Material K for September is 8,100 yards, which is choice C.