Alliance Company 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?
A)$240,000.
B)$352,000.
C)$256,000.
D)$144,000.
E)$208,000.

Question

Quizplus · Accepted Answer

Firstly, let's calculate the total raw material needed for production in January and February.

January's total raw material needed = 24,000 units x 4 pounds per unit = 96,000 pounds
February's total raw material needed = 28,000 units x 4 pounds per unit = 112,000 pounds

Next, let's calculate the required raw material inventory for each month.

February's required inventory level = 40% x 112,000 pounds = 44,800 pounds
January's required inventory level = 40% x 44,800 pounds = 17,920 pounds

Now, let's calculate the total raw material Alliance Company needs to purchase for January and the cost of that purchase.

Total raw material needed for January = January's total raw material needed + February's required inventory level - January's beginning inventory
Total raw material needed for January = 96,000 pounds + 44,800 pounds - 38,400 pounds = 102,400 pounds

Budgeted materials cost for January = Total raw material needed for January x Cost per pound
Budgeted materials cost for January = 102,400 pounds x $2.50 per pound = $256,000

Therefore, the answer is C, $256,000.

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