Castil Corporation makes and sells a product called a Miniwarp. One Miniwarp requires 2.5 kilograms of the raw material Jurislon. Budgeted production of Miniwarps for the next five months is as follows: The company wants to maintain monthly ending inventories of Jurislon equal to 20% of the following month's production needs. On July 31, this requirement was not met since only 9,700 kilograms of Jurislon were on hand. The cost of Jurislon is $5.00 per kilogram. The company wants to prepare a Direct Materials Purchase Budget for the next five months.
-The total cost of Jurislon to be purchased in August is:

Question

Castil Corporation makes and sells a product called a Miniwarp. One Miniwarp requires 2.5 kilograms of the raw material Jurislon. Budgeted production of Miniwarps for the next five months is as follows:  The company wants to maintain monthly ending inventories of Jurislon equal to 20% of the following month's production needs. On July 31, this requirement was not met since only 9,700 kilograms of Jurislon were on hand. The cost of Jurislon is $5.00 per kilogram. The company wants to prepare a Direct Materials Purchase Budget for the next five months.
-The total cost of Jurislon to be purchased in August is:

Quizplus · Accepted Answer

To calculate the total cost of Jurislon to be purchased in August, we need to calculate the total production needs for September first (which is 13,000 kg).

Total production needs for September = Budgeted production + Ending inventory requirement = 12,500 + (20% of 13,000) = 12,500 + 2,600 = 15,100 kg

Now, to calculate the required purchases of Jurislon for August:

Required purchases of Jurislon for August = Total Jurislon needed in September – Jurislon on hand on July 31

= 15,100 – 9,700 = 5,400 kg

Total cost of Jurislon to be purchased in August = Quantity of Jurislon needed in August x Cost per kilogram
= 5,400 x $5.00 = $27,000

Therefore, the correct choice is D.

Castil Corporation Makes and Sells a Product Called a Miniwarp