Question

The Johnston Company had the following costs based on the production and sale of 40,000 units: $0.50 per Direct Materials kg 5kg per Materials unit Direct Other information: The company had the following budgeted sales for December, January, and February: December January February Month Sales (in units) Selling Price per $40/unit $42/unit$43/unit unit 30,000 40,000 50,000 The company has a policy of always maintaining the following inventory levels: Finished Goods Inventory 10% of next month's sales. Direct Materials Inventory 30% of next month's production requirements. The company's sales and collection history shows that 10 % of all sales are for cash and the accounts receivable are collected in the following way: 70% in the month of the sale 28% in the month after the sale How many KG of Direct Materials are needed in December? 155,000KG 43,300KG 170,000KG 216,500KG

Answer 1

Production units in December = Sales units in December + Ending inventory of finished goods in December - Beginning inventory of finished goods in December

= 30,000 + (40,000 x 10%) - (30,000 x 10%)

= 30,000 + 4,000 - 3,000

= 31,000 units

Direct material needed = 5 kg. per unit

Direct material needed in December = Production units in December x Direct material needed per unit

= 31,000 x 5

= 155,000 kg

First option is the correct option.

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