First, compare these 2 problems from Becker. Becker is very annoying in stating in the second “(The beginning inventory meets this requirement.) ” but not stating it in the first. Of course the first question DOES require beginning inventory to be included in the calculation.
Additionally there are questions similar to Question 1, giving a scenario with x% of next months sales in ending inventory, and then assuming it is there in beginning inventory leads to a wrong answer.
Question 1
A company has budgeted sales for January and February of 20,000 and 25,000 units, respectively. The selling price is $5 per unit and the purchase price is $3 per unit. Budgeted ending inventory is 10 percent of the next month’s sales. What is the budgeted cost of purchases for January?
a.$54,000
b.$61,500
c.$75,000
d.$60,000
Correct answer is b which includes the beg inventory at Jan 1 (10% of the budgeted units)
Question 2
ordan Auto has developed the following production plan.
Month
Units
January 10,000
February 8,000
March 9,000
April 12,000
Each unit contains three pounds of raw material. The desired raw material ending inventory each month is 120 percent of the next month's production, plus 500 pounds. (The beginning inventory meets this requirement.) Jordan has developed the following direct labor standards for production of these units.
Department 1
Hours per unit 2.0 Hourly Rate $6.75
Department 2
Hours per unit 0.5 Hourly rate $12.00
Jordan Auto's total budgeted direct labor dollars for February usage should be:
a.$175,500
b.$165,750
c.$210,600
d.$156,000
Answer d.
.