Question

Cheetos &Cheeeters produces Deluxe Leather Cheeters. The production budget for the next four months is: July 5,200 units, August 7,800 units, September 7,600 units, October 8,000 units. Each Cheeter requires 0.5 square meters of leather. Cheetos & Cheeeters's leather inventory policy is 30% of next month's production needs. On July 1 leather inventory was expected to be 780 square meters. Leather is expected to cost $10.00 per square meter in June, but go up to $11.00 per square meter in July. What is the expected cost of leather purchases in July? Select one: a. $32,890 b. $33.790 c. $33,890 d. $31.390

Answer 1

H Correct Answer for this question is Option a. $32890 Particulars Production units in July Raw material consumption per unit in sqm. Total Raw material consumption in July (sqm) Less: Opening stock of raw material (sqm) Add: closing stock of raw material(sqm) {see note} Raw material purchases (sqm) Purchase price per unit of Raw material Cost of leather purchase in July Amount Calculations 5200 0.5 2600 (5200*0.5) 780 1170 2990 (2600-780+1170) $ 11 $ 32,890 (2900*11) Note : Closing inventory of raw material is 30% of production requirements of next month. So closing raw material of July is equal to 30% of production requirements of August month August month raw material requirement(consumption) = 7800*0.5sqm = 3900 sqm So, Closing inventory of raw material in July = 3900 * 30% = 1170 sqm