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18 March, 15:19

Cahuilla Corporation predicts the following sales in units for the coming four months: April May June JulySales in Units 240 280 300 240

Each month's ending Finished Goods Inventory should be 40% of the next month's sales. March 31 Finished Goods inventory is 96 units. A finished unit requires five pounds of direct material B at a cost of $2.00 per pound. The March 31 Raw Materials Inventory has 200 pounds of B. Each month's ending Raw Materials Inventory should be 30% of the following month's production needs. The budgeted purchases of pounds of direct material B during May should be:

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  1. 18 March, 16:48
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    Budgeted purchases of pounds of direct material B during May = 1,440 pounds @ $2 per pound.

    Purchase cost = $2,880

    Explanation:

    Units required to be produced in April = Units required to be sold April - Opening Inventory + 40% of Sales of May

    = 240 - 96 + (280 X 40%) = 256 units

    Total units of raw material to be purchased = 256 X 5 pounds = 1,280 pounds

    Now for the month of May

    Units required to be produced in May = Sales for the month - Opening Inventory + 40% of Sales of June

    = 280 - 112 + (300 X 40%) = 288

    For 288 units purchase = 288 X 5 pounds = 1,440 pounds

    Purchase cost for the month = $1,440 X $2.00 = $2,880
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