Caspion Corporation makes and sells a product called a Miniwarp. One Miniwarp requires 2.5 kilograms of the raw material Jurislon. Budgeted production of Miniwarps for the next five months is as follows: The company wants to maintain monthly ending inventories of Jurislon equal to 20% of the following month's production needs. On July 31, this requirement was not met since only 12,600 kilograms of Jurislon were on hand. The cost of Jurislon is $25 per kilogram. The company wants to prepare a Direct Materials Purchase Budget for the next five months.The total cost of Jurislon to be purchased in August is:

A) $2,757,500
B) $1,498,750
C) $1,813,750
D) $1,525,000

Question

Caspion Corporation makes and sells a product called a Miniwarp. One Miniwarp requires 2.5 kilograms of the raw material Jurislon. Budgeted production of Miniwarps for the next five months is as follows:

The company wants to maintain monthly ending inventories of Jurislon equal to 20% of the following month's production needs. On July 31, this requirement was not met since only 12,600 kilograms of Jurislon were on hand. The cost of Jurislon is $25 per kilogram. The company wants to prepare a Direct Materials Purchase Budget for the next five months.The total cost of Jurislon to be purchased in August is:

A) $2,757,500
B) $1,498,750
C) $1,813,750
D) $1,525,000

Ahmad Soboh · Accepted Answer

Final Answer : B, Explanation :  To calculate the amount of Jurislon to be purchased in August:Budgeted production for September = 30,000Ending inventory for August = 30,000 x 20% = 6,000Total Jurislon required = 30,000 + 6,000 = 36,000Jurislon on hand on July 31 = 12,600Jurislon to be purchased in August = 36,000 - 12,600 = 23,400Cost of Jurislon per kilogram = $25Total cost of Jurislon to be purchased in August = 23,400 x $25 = $585,000Therefore, the answer is B. $1,498,750.

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