Assume for a firm that budgeted production for July and August is 180 000 and 200 000 units respectively. It takes half a kilogram of direct material to make one unit of finished product. Materials inventory is maintained at 10 per cent of the next month's budgeted production needs. If the 30 June inventory of materials was 5000 kg, how many kilograms of direct material should be purchased during July?
A) 105 000 kg
B) 195 000 kg
C) 90 000 kg
D) 95 000 kg

Question

Quizplus · Accepted Answer

To calculate the kilograms of direct material to be purchased in July, first determine the material needed for July's production: 180,000 units * 0.5 kg/unit = 90,000 kg. Next, calculate the desired ending inventory for July, which is 10% of August's production needs: 200,000 units * 0.5 kg/unit * 10% = 10,000 kg. The total material requirement for July is 90,000 kg + 10,000 kg = 100,000 kg. Subtract the beginning inventory (30 June) of 5,000 kg to find the purchase requirement: 100,000 kg - 5,000 kg = 95,000 kg.

Assume for a Firm That Budgeted Production for July and August