Question

PUNT The Johnston Company had the following costs based on the production and sale of 40,000 units: Direct $0.50 per Materials kg Direct 5kg per Materials unit Other information: The company had the following budgeted sales for December, January, and February: Month December January February Sales (in 30,000 40,000 50,000 units) Selling Price per $40/unit $42/unit$43/unit unit The company has a policy of always maintaining the following inventory levels: Finished Goods Inventory = 10% of next month's sales. Direct Materials Inventory = 30% of next month's production requirements. The company's sales and collection history shows that 10% of all sales are for cash and the accounts receivable are collected in the following way: 70% in the month of the sale 28% in the month after the sale What is the cost of DM to be purchased in December?

Answer 1

The answer has been presented in the supporting sheet. All the parts has been solved with detailed explanation and calculation. For detailed answer refer to the supporting sheet.

C D E F G H I J 1 Answer 2 Firstly we have to calculate the preoduction requirements of december and january 3 4 Production Requirement 5 Particulars December January 6 Desired Ending Inventory 4000 5000 7 (40000*10%) (50000*10%) 8 Add sales 30000 40000 9 Less Beginning inventory 3000 4000 10 (30000*10%) (40000*10%) 11 Production Requirement 31000 41000 12 13 14 Cost of direct material purchase = desired ending inventory + required for production - beginning inventory) * cost per direct material 15 = ((41000*5*30%) + (31000*5)-(31000*5*30%))*.5 16 =( 61500 + 155000 -46500)*.5 17 = $ 85000 18 19 Thus the correct answer direct material purchased in december is $ 85000 20 21