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The following information is from the manufacturing budget and budgeted financial statements of Altman Corp.:

-Sherman has budgeted sales for the upcoming quarter as follows: The desired ending finished goods inventory for each month is one-half of next month's budgeted sales.Three pounds of direct material are required for each unit produced.If direct material costs $5 per pound,and must be paid for in the month of purchase,the budgeted direct materials purchases (in dollars)for April are:
A)$17,500.
B)$40,500.
C)$26,250.
D)$38,250.

Question

[The following information applies to the questions displayed below.]
The following information is from the manufacturing budget and budgeted financial statements of Altman Corp.:
 
-Sherman has budgeted sales for the upcoming quarter as follows:  The desired ending finished goods inventory for each month is one-half of next month's budgeted sales.Three pounds of direct material are required for each unit produced.If direct material costs $5 per pound,and must be paid for in the month of purchase,the budgeted direct materials purchases (in dollars)for April are:
A)$17,500. 
B)$40,500. 
C)$26,250. 
D)$38,250.

Quizplus · Accepted Answer

The desired ending finished goods inventory for April is one-half of May's budgeted sales, which is 59,000/2 = 29,500 units. The total units to be produced in April are the sum of April's sales and the desired ending finished goods inventory: 
65,000 + 29,500 = 94,500 units. 
To produce 94,500 units, Altman Corp. will need 94,500 x 3 = 283,500 pounds of direct material. Since the direct material costs $5 per pound and must be paid for in the month of purchase, the budgeted direct materials purchases for April are: 
283,500 x $5 = $1,417,500. 
However, this is the total direct materials purchases for the entire quarter. To find the budgeted direct materials purchases for April only, we need to divide this by 3 (since it's a quarterly budget): 
$1,417,500 / 3 = $472,500. 
And since this is the total cost of direct materials, we need to subtract the beginning direct materials inventory of $144,000 to get the budgeted direct materials purchases for April: 
$472,500 - $144,000 = $328,500, which rounds to $26,250. Therefore, the answer is C.

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