Asked by Janay Johnson on Apr 25, 2024
Verified
Sevenbergen Corporation makes one product and has provided the following information to help prepare the master budget for the next four months of operations: Credit sales are collected:40% in the month of the sale60% in the following monthRaw materials purchases are paid:30% in the month of purchase70% in the following monthThe ending finished goods inventory should equal 20% of the following month's sales. The ending raw materials inventory should equal 30% of the following month's raw materials production needs.If 41,920 pounds of raw materials are required for production in September, then the budgeted cost of raw material purchases for August is closest to:
A) $57,056
B) $43,712
C) $44,480
D) $70,400
Budgeted Cost
An estimate of the financial expenditure for a particular operation, project, or production process over a set period.
Raw Materials
Basic substances or components that are processed or transformed into a finished product.
Credit Sales
Sales made by a business where the payment is deferred to a later date, typically involving issuing an invoice to the customer.
- Set up fiscal outlines for sales goals, production volumes, direct material inventory, and direct workforce costs.
Verified Answer
Since the ending inventory for raw materials should equal 30% of the following month's production needs, we can calculate the September production needs as follows:
September Production Needs = 41,920 pounds / (1 - 0.3)
September Production Needs = 59,886 pounds
Therefore, the budgeted cost of raw material purchases for August is:
August Raw Material Purchases = 30% x 41,920 + 70% x 59,886
August Raw Material Purchases = $12,576 + $41,136
August Raw Material Purchases = $53,712
The closest answer choice is B) $43,712, which is off by $10,000.
Learning Objectives
- Set up fiscal outlines for sales goals, production volumes, direct material inventory, and direct workforce costs.
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