Cahuilla Corporation predicts the following sales in units for the coming four m

Question

Cahuilla Corporation predicts the following sales in units for the coming four months: 152C April May June July 400 440 460 400 Sales in Units Each month's ending Finished Goods Inventory should be 40% of the next month's sales. March 31 Finished Goods inventory is 160 units. A finished unit requires 5 pounds of direct material B at a cost of $3.00 per pound. The March 31 Raw Materials Inventory has 250 pounds of B. Each month's ending Raw Materials Inventory shoul be 30% of the follow ng month's p oduction needs. The budgeted purchases of pounds of direct material B during May shouid be Muliple Choice 2894 tbs 1,568 lbs. 448 lbs 436 lbs O 22221b

Explanation / Answer

Production during May = May sales + 40% of june sales - 40% of May sales

= 440 + (460*40%) - (440*40%)

= 440 + 184 - 176

= 448

Production requirements for May = 448 units * 5 pounds per unit = 2,240

Production during June = June sales + 40% July sales - 40% of June sales

= 460 + (400*40%) - (460*40%)

= 460 + 160 - 184

= 436

Production requirements for June = 436 units * 5 pounds per unit = 2,180

Budgeted purchases of pounds of direct material B during May = May production needs + 30% of June production needs - 30% of May production needs

= 2,240 + (2,180*30%) - (2,240*30%)

= 2,240 + 654 - 672

= 2,222 lbs

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Direct materials cost variance = (actual cost - standard cost) * actual quantity

= (1.3 - 1.1) * 46,000

= 9,200 Unfavourable

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