Question

Cape Corporation sells a single product. Budgeted sales for the year are anticipated to be 640,000 units, estimated beginning inventory is 98,000 units, and desired ending inventory is 80,000 units. The quantities of direct materials expected to be used for each unit of finished product are given below.

Material A	.50 lb. per unit	@ $0.60 per pound
Material B	1.00 lb. per unit	@ $1.70 per pound
Material C	1.20 lb. per unit	@ $1.00 per pound

The amount of direct material A purchased during the year is:

a.$245,400.

b.$192,000.

c.$216,000.

d.$186,600.

Answer 1

Option (d) is correct

First we will calculate the purchases as per below:

Beginning inventory + Purchases - Ending inventory = Sales

Putting the given values in the above equation, we get,

98000 + Purchases - 80000 = 640000

18000 + Purchases = 640000

Purchases = 640000 - 18000 = 622000

So, purchases = 622000 units

Now, we will calculate the cost of Material A purchases as per below:

Material A = 0.50 lb per unit = 0.50 lb * 622000 units

Material A = 311000 lbs

Cost of material A purchases = 311000 * $0.60 per pound = $186600