The Z Company has prepared a sales budget for 40 000 units for a three-month period. The company desires a closing finished goods inventory of 12 000 units, and closing direct material inventory of 14 000 units at the end of the quarter. There is no beginning finished goods inventory, but beginning inventory of direct materials is 2000 units. It takes two units of direct material to make one unit of finished product. The number of units of direct material to be purchased during the quarter is
A) 52 000.
B) 104 000.
C) 118 000.
D) 116 000.

Question

Quizplus · Accepted Answer

To calculate the units of direct material to be purchased, first determine the total direct material needed for production and desired ending inventory, then subtract the beginning inventory. For production: 40,000 units of finished goods * 2 units of direct material = 80,000 units. Desired ending inventory is 14,000 units. Total needed = 80,000 + 14,000 = 94,000 units. Subtract beginning inventory of 2,000 units: 94,000 - 2,000 = 92,000 units needed to be purchased. However, considering the desired closing finished goods inventory of 12,000 units, which also requires 2 units of direct material each, adds an additional 24,000 units to the calculation, making the total 116,000 units (92,000 + 24,000).

The Z Company Has Prepared a Sales Budget for 40