Alliance Company's budgets production of 25,000 units in January and 29,000 units in the February. Each finished unit requires 4 pounds of raw material K that costs $3.50 per pound. Each month's ending raw materials inventory should equal 40% of the following month's budgeted materials. The January 1 inventory for this material is 40,000 pounds. What is the budgeted materials cost for January?

The budgeted materials cost for January is 106,400 pounds

Explanation:

For computing the budgeted material cost for January month, the calculation is shown below:

= Required production + ending raw material inventory - beginning raw material inventory

where,

Required production = January production units * required pounds

= 25,000 units * 4

= 100,000 pounds

Ending raw material inventory = 40% of February month * required pound

= 40% * 29,000 * 4

= 46,400 pounds

Now, put these values in the above formula

So, budgeted material cost for January month is equals to

= 100,000 pounds + 46,400 pounds - 40,000 pounds

= 106,400 pounds

Hence, the budgeted materials cost for January is 106,400 pounds

Answer: $372400 ⇒ This is the budgeted materials cost for January.

Explanation:

Given that,

Budgets production in January = 25,000 units

Budgets production in February = 29,000 units

Material required for production (in January):

Each finished unit requires 4 pounds of raw material K that costs $3.50 per pound

= 25000 * 4 * $3.50

= 350,000

Ending Material Balance:

Budgeted material = 29000 * 4 * 3.50 = 406,000

so,

40% of following month's budgeted materials will be: 40% of 406,000

= 162400

Beginning Material Balance:

= 40000 pounds * 3.50

= 140,000

∴ Budgeted raw material = Material required for production + ending material balance - beginning material balance

= 350000 + 162400 - 140,000

= $372400 ⇒ This is the budgeted materials cost for January.