Question

WellWheats, Inc. produces breakfast cereal and sells each box, or unit, for $7. The company is projecting sales of 1,000 units for the month of March. There are 30 units in the beginning inventory. Each unit requires 20 ounces of raw materials and 0.20 direct labor hours to make. The company's policy is to keep ending finished goods inventory of 10% of the current month's sales. Selling and administrative expenses for the month have been budgeted at $2,000.

Assume that the beginning raw materials inventory is 2,000 ounces. If the desired ending raw materials inventory is 20% of the current month's production needs, calculate the budgeted raw materials to be purchased.

A. 23,680 ounces

B. 21,680 ounces

C. 21,400 ounces

D. 19,120 ounces

Answer 1

Solution:

Production budget - Wellwheats Inc.
Particulars	March
Budgeted sales units	1000
Add: Desired ending inventory (10% of Current month sale)	100
Less: Beginning inventory	30
Budgeted Production	1070

Raw material purchase Budget - Wellwheats Inc.
Particulars	March
Production units	1070
Material required per unit (In Ounce)	20
Total material required for March	21400
Add: Desired ending inventory (20% of current month production needs)	4280
Less: Beginning inventory	2000
Raw Material to be purchased (In Ounces)	23680

Hence option A is correct.