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4 June, 12:43

EA5.

LO 7.2Sunrise Poles manufactures hiking poles and is planning on producing 4,000 units in March and 3,700 in April. Each pole requires a half pound of material, which costs $1.20 per pound. The company’s policy is to have enough material on hand to equal 10% of the next month’s production needs and to maintain a finished goods inventory equal to 25% of the next month’s production needs. What is the budgeted cost of purchases for March?

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  1. 4 June, 16:05
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    Total cost = $3,121.5

    Explanation:

    Giving the following information:

    Sunrise Poles manufacture hiking poles and is planning on producing 4,000 units in March and 3,700 in April. Each pole requires a half-pound of material, which costs $1.20 per pound. The company's policy is to have enough material on hand to equal 10% of the next month's production needs and to maintain a finished goods inventory equal to 25% of the next month's production needs.

    We need to calculate the production required for March:

    Sales of March = 4,000 units

    Ending inventory = (3,700*0.25) = 925 units

    Now, we can calculate the material required:

    Direct material:

    For March = 4925*0.5 = 2,462.5 pounds

    Ending inventory = (2,775 units*0.5) * 0.1 = 138.75 pounds

    Total = 2,601.25 pounds

    Total cost = 2,601.25*$1.20 = $3,121.5
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