[mitchmatch]

A company manufactures a product using one material per unit. The following information for the upcoming budget year is available:

Number of units sold 14,500

Budgeted beginning finished goods inventory units 1,500

Budgeted ending finished goods inventory units 3,000

Budgeted beginning direct materials inventory units 2,000

Budgeted ending direct materials inventory units 1,500

Direct manufacturing material cost per unit $5

What amount is the total direct materials purchasing budget?

A.

$67,500

Incorrect B.

$72,500

C.

$77,500

D.

$80,000

Answer is c

i thought you would do purchase plus ending material minus beginning material times the cost per unit.

Explanation The company would produce 16,000 finished units, 14,500 to sell and 1,500 more to increase the finished goods inventory from 1,500 to 3,000 units. They would have to purchase 16,000 units of material, except that the raw material inventory declines by 500 units, from 2,000 units to 1,500 units; therefore, they will only purchase 15,500 units. At a cost of $5 per unit, the 15,500 units will cost $77,500.

Im so confused, please help.

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BECKERS

[ohiostategirlcpa]

Make separate T-accounts for DM, WIP, FG, then follow the work flow. You transfer from DM to WIP to FG. In this case beginning and ending WIP inventory is 0.

F91 A95 R90 B94
CMA since 2015
(Gleim books/PDFs, MCQs, SIMS)

[mitchmatch]

Ok so i did that and it works, can you explain why 14500 production +ending material 1500- beginning material 200= 14000 doesnt work

FAR-76 First attempt.
AUD-79 First attempt.
REG-79 First attempt.
BEC-79 First attempt.

Done!

BECKERS

[ohiostategirlcpa]

Production is 16,000, not 14,500

Production = sales of 14,500 + 3000 FG ending inventory – 1500 Beg inv.

Some of the material produced stays in-house to increase (FG) inventory.

F91 A95 R90 B94
CMA since 2015
(Gleim books/PDFs, MCQs, SIMS)

[mitchmatch]

OOOOOO This question first needed the level of production formula, and then the direct material purchases formula, is that right?

FAR-76 First attempt.
AUD-79 First attempt.
REG-79 First attempt.
BEC-79 First attempt.

Done!

BECKERS

[ohiostategirlcpa]

Yes.
Personally, I don't use “formulas”, I just make T-accounts.
I need to visualize the company situation first.
Given that the AICPA questions can ask for all kinds of nonsensical information, and give out irrelevant distractors, I just chart the company accounts, and then answer the question.

F91 A95 R90 B94
CMA since 2015
(Gleim books/PDFs, MCQs, SIMS)

[Author]

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