Deck 15: Budgeting and Financial Planning

Question 1

A slightly inaccurate sales forecast will not affect the other schedules comprising the master budget.

Answer 1

False

Question 2

The master budget is a comprehensive profit plan tying together all phases of an organization's operations.

Answer 2

True

Question 3

The idea behind participative budgeting is to involve employees throughout an organization in the budgetary process with the belief that they will be more willing to accept it.

Answer 3

True

Question 4

Strategic long-range plans are usually stated in rather specific terms.

Question 5

Econometric models can include many relevant predictors that can be manipulated in order to examine different hypothetical conditions and relate them to the sales forecast.

Question 6

Base-budgeting is similar to zero-based budgeting in that it sets the initial budget for virtually everything to zero.

Question 7

Padding the budget or manipulating reported results in order to maximize one's personal gain or that of others is considered unethical behavior.

Question 8

In addition to helping management decide how much to order at a time, the EOQ model can help in deciding when to order and how much inventory should be held as a safety stock.

Question 9

The master budget is a detailed plan for the coming year, expressed in quantitative terms.

Question 10

The master budget is based on many assumptions and estimates of known parameters.

Question 11

A financial planning model is a set of mathematical relationships expressing interactions between the various operational, financial, and environmental events that determine the overall results of an organization's activities.

Question 12

Budgetary padding is the difference between the revenue or cost projections provided and an actual revenue or cost.

Question 13

Critical success factors are the key strengths most responsible for making an organization successful.

Question 14

Where direct labor belongs on the cost hierarchy depends on management's ability to adjust the organization's labor force to match short-term requirements, as well as management's attitude about making such adjustments.

Question 15

Under zero-based budgeting, the budget for virtually every activity in the firm is initially set to zero and each activity must be justified in terms of its continued usefulness in order to receive funding during the budgetary process.

Question 16

The concept of cost management whereby costs are actively managed is key to the emerging philosophy of contemporary budgeting and financial planning.

Question 17

All organizations begin the budgeting process with plans for (1) the goods or services to be provided and
(2) the revenue to be available from sales or other sources.

Question 18

When constructing a budget using ABC concepts, it is difficult to understand why costs occur and hard to mange costs to improve profitability.

Question 19

Activity Based Budgeting recognizes that all costs can be easily divided into fixed and variable costs.

Question 20

The EOQ formula ignores the costs of holding inventory in calculating the optimum economic order quantity.

Question 21

The JIT philosophy is that inventories should be minimized by more frequent deliveries in smaller quantities.

Question 22

While the economics underlying the EOQ support the JIT viewpoint that inventory should be purchased or produced in small quantities, thus keeping inventories to a minimum, their basic philosophies are quite different.

Question 23

Which of the following is not a purpose of budgeting?

A) Facilitating communication and control
B) Managing financial and operational performance
C) Evaluating performance and providing incentives
D) All are purposes

Question 24

When preparing a sales forecast, which of the following is not a factor to be considered?

A) Economic trends in the company's industry
B) Political and legal events
C) A change in the management of the company
D) New products contemplated by the company of other firms

Question 25

Which of the following is a difference between master budgets for nonprofit organizations and those for other companies?

A) Nonprofit organizations begin their budgeting process with a budget showing the level of service to be provided
B) Nonprofit organizations prepare budgets showing their anticipated funding
C) Nonprofit organizations frequently provide services free of charge, thus having no traditional sales budget
D) All of the above are differences

Question 26

Multinational firms have additional challenges when preparing budgets. Which of the following is not such a challenge?

A) A multinational firm's budget must reflect the translation of foreign currency into U.S. dollars
B) High or unpredictable inflation (or deflation) makes it difficult to prepare budgets
C) The economies of all countries fluctuate in terms of consumer demand, availability of skilled labor, laws affecting commerce, etc
D) All of the above are challenges

Question 27

Which of the following is typically considered fixed under traditional budgeting processes, but considered variable under activity based budgeting:

A) Set ups, inspections and purchasing
B) Material handling, designing and quality control
C) A and B
D) None of the above

Question 28

Direct labor is not a unit level cost when:

A) Management cannot adjust labor to declines in production because of restriction in contracts
B) Management strives to maintain a stable labor force and will not sacrifice morale by laying off workers
C) Neither A nor B
D) Both A and B

Question 29

Tarheel Company produces and sells specialized portfolio cases. It expects to sell 20,000 cases next year at $75 each. There is a beginning inventory of 1,500 cases and the company wants to have an ending inventory equal to 30 percent of this year's sales. How many cases need to be produced?

A) 15,500
B) 20,000
C) 24,500
D) 26,000

Question 30

Use the following to answer questions:
Butler Company produces tea sets. The following sales have been predicted for the third quarter of the year:

The inventory on hand July 1st was 2,000 sets. The ending finished goods inventory is budgeted at 20 percent of the next month's sales. The sets sell for $200 each. October sales are estimated at 8,000 sets.

-How many sets should Butler Company produced in July?

A) 2,000
B) 10,200
C) 12,000
D) 12,200

Question 31

Use the following to answer questions:
Butler Company produces tea sets. The following sales have been predicted for the third quarter of the year:

The inventory on hand July 1st was 2,000 sets. The ending finished goods inventory is budgeted at 20 percent of the next month's sales. The sets sell for $200 each. October sales are estimated at 8,000 sets.

-How many sets should be produced in September?

A) 2,000
B) 8,000
C) 9,000
D) 10,600

Question 32

Carson Inc., a retail establishment, expects sales of $500,000 of a particular item in March. Its gross profit percentage is 60 percent. The ending inventory in February of this item cost $40,000 and the company wants an ending inventory of $38,000 (cost). How much needs to be purchased?

A) $ 38,000
B) $198,000
C) $498,000
D) $502,000

Question 33

Each unit takes 4 pounds of material 256, which costs $3 per pound. Lexington, Inc. has 1,600 pounds of material on hand March 30th and wants an ending inventory of material 256 at 5 percent of the next month's production. Production in July is expected to be 12,000 units. How much material 256 needs to be purchased in May and at what cost?
Lexington, Inc. has developed the following production budget for one of its products for the second quarter of the year:

A) 62,280, $186,840
B) 60,920, $182,760
C) 64,000, $192,000
D) 61,600, $184,800

Question 34

Loft Company has the following information for next month: planned production of 20,000 units which require 3 gallons of Material A each; beginning inventory of Material A of 4,800 gallons; desired ending inventory of Material A of 6,000 gallons. How much material A needs to be purchased?

A) 21,200 gallons
B) 60,000 gallons
C) 61,200 gallons
D) 70,800 gallons

Question 35

Use the following to answer questions:
Chang Inc. has developed the following units costs for the production of one of its products, based on a normal activity of 10,000 units per month:


-What is the total amount of direct labor budgeted for a month in which production is expected to be 11,000 units?

A) $165,000
B) $225,000
C) $247,500
D) $297,000

Question 36

Use the following to answer questions:
Chang Inc. has developed the following units costs for the production of one of its products, based on a normal activity of 10,000 units per month:


-What is the total amount of overhead included in the overhead budget for a month in which production is expected to be 11,000 units?

A) $612,000
B) $643,500
C) $600,000
D) $594,000

Question 37

Use the following to answer questions:
Jorge Inc. has developed the following sales forecast for the first third of the year:

Collection pattern:
60 percent in the month of sale
40 percent in the month after sale

The company's selling price is $20 per unit and they desire an ending inventory equal to 30 percent of the next month's sales.

-What is the budgeted beginning balance in units for finished goods inventory on March 1?

A) 9,800
B) 9,000
C) 6,000
D) 5,000

Question 38

Use the following to answer questions:
Jorge Inc. has developed the following sales forecast for the first third of the year:

Collection pattern:
60 percent in the month of sale
40 percent in the month after sale

The company's selling price is $20 per unit and they desire an ending inventory equal to 30 percent of the next month's sales.

-How much is expected to be collected from sales in February?

A) $260,000
B) $300,000
C) $590,000
D) $560,000

Question 39

The Budget Director is responsible for

A) Coordinating, gathering and organizing
B) Approving the final budget
C) Authorizing changes to the Budget
D) Authorizing all salary changes

Question 40

Which of the following is not a reason for padding a budget with slack?

A) People often perceive their performance will look better in their superior's eyes if they can "beat the budget"
B) The budget was developed by top management who have no idea of what goes
C) on in the various units of the company
D) Budgetary slack is often used to cope with uncertainty
E) Budgetary cost projections often are cut in the resource allocation process

Question 41

Use the following to answer questions:
Hessen is a wholesaler. The sales budget for November is $500,000 with a gross margin percentage of 65 percent. All purchases are paid for in the month following the purchase. Hessen's beginning inventory is $40,000 and an ending inventory, stated at cost, of $32,000 is desired. The beginning balance in accounts payable is $200,000.

-What is the November 30th balance in accounts payable?

A) $167,000
B) $207,000
C) $492,000
D) $508,000

Question 42

Use the following to answer questions:
Hessen is a wholesaler. The sales budget for November is $500,000 with a gross margin percentage of 65 percent. All purchases are paid for in the month following the purchase. Hessen's beginning inventory is $40,000 and an ending inventory, stated at cost, of $32,000 is desired. The beginning balance in accounts payable is $200,000.

-What is the cash paid for purchases in November?

A) $135,000
B) $175,000
C) $200,000
D) $240,000

Question 43

Use the following to answer questions:
Williams Pharmacy Inc. has the following sales budget for the first two quarters of next year:

Cash collections have been determined to follow the pattern below:
60 percent of sales collected in month of sales
25 percent of sales collected in month after sale
12 percent of sales collected two months after sale
3 percent of sales is uncollectible

-Cash collections for March are

A) $188,000
B) $218,000
C) $224,900
D) $225,500

Question 44

Use the following to answer questions:
Williams Pharmacy Inc. has the following sales budget for the first two quarters of next year:

Cash collections have been determined to follow the pattern below:
60 percent of sales collected in month of sales
25 percent of sales collected in month after sale
12 percent of sales collected two months after sale
3 percent of sales is uncollectible

-What is the ending balance of accounts receivable for March, assuming uncollectibles are written off after the second month?

A) $ 30,000
B) $ 92,000
C) $129,500
D) $122,000

Question 45

Use the following to answer questions:
Williams Pharmacy Inc. has the following sales budget for the first two quarters of next year:

Cash collections have been determined to follow the pattern below:
60 percent of sales collected in month of sales
25 percent of sales collected in month after sale
12 percent of sales collected two months after sale
3 percent of sales is uncollectible

-Cash collections for April are

A) $213,500
B) $219,500
C) $220,400
D) $226,400

Question 46

Use the following to answer questions:
Carlos Co. produces tables. The sales estimated for the third quarter of the year are as follows:

The beginning inventory finished goods balance should equal 25 percent of each month's sales for the third quarter and 20 percent of each month's sales for the fourth quarter. October sales are estimated at 20,000 tables. The cost of producing a table is $185.

-How many tables will be produced in August?

A) 36,250
B) 35,000
C) 33,750
D) 32,250

Question 47

Use the following to answer questions:
Carlos Co. produces tables. The sales estimated for the third quarter of the year are as follows:

The beginning inventory finished goods balance should equal 25 percent of each month's sales for the third quarter and 20 percent of each month's sales for the fourth quarter. October sales are estimated at 20,000 tables. The cost of producing a table is $185.

-How many tables will be produced in the quarter?

A) 95,000
B) 91,500
C) 92,500
D) 98,500

Question 48

Use the following to answer questions:
Carlos Co. produces tables. The sales estimated for the third quarter of the year are as follows:

The beginning inventory finished goods balance should equal 25 percent of each month's sales for the third quarter and 20 percent of each month's sales for the fourth quarter. October sales are estimated at 20,000 tables. The cost of producing a table is $185.

-What will be the cost of goods manufactured in September?

A) $6,197,500
B) $6,012,500
C) $5,087,500
D) $4,902,500

Question 49

Use the following to answer questions:
Abracadabra Co. manufactures magic sets. The sales planned for next year are 22,000 sets. Beginning material inventory is sufficient to produce 5,000 sets. Beginning work in process inventory is 1,000 sets that are 100 percent complete as to materials and 60 percent complete as to labor and overhead; there is no ending inventory. The finished goods inventory has a beginning inventory of 3,000 sets and a target inventory of 5,000 sets for December 31. The sets sell for $75. Direct materials cost $15; direct labor is $10; and manufacturing overhead is $12.

-What will be the total sales for the year?

A) $1,725,000
B) $1,650,000
C) $1,572,000
D) $1,500,000

Question 50

Use the following to answer questions:
Abracadabra Co. manufactures magic sets. The sales planned for next year are 22,000 sets. Beginning material inventory is sufficient to produce 5,000 sets. Beginning work in process inventory is 1,000 sets that are 100 percent complete as to materials and 60 percent complete as to labor and overhead; there is no ending inventory. The finished goods inventory has a beginning inventory of 3,000 sets and a target inventory of 5,000 sets for December 31. The sets sell for $75. Direct materials cost $15; direct labor is $10; and manufacturing overhead is $12.

-How many sets will be produced?

A) 20,000
B) 22,000
C) 23,000
D) 24,000

Question 51

Use the following to answer questions:
Abracadabra Co. manufactures magic sets. The sales planned for next year are 22,000 sets. Beginning material inventory is sufficient to produce 5,000 sets. Beginning work in process inventory is 1,000 sets that are 100 percent complete as to materials and 60 percent complete as to labor and overhead; there is no ending inventory. The finished goods inventory has a beginning inventory of 3,000 sets and a target inventory of 5,000 sets for December 31. The sets sell for $75. Direct materials cost $15; direct labor is $10; and manufacturing overhead is $12.

-What will be the amount of cost of goods sold?

A) $740,000
B) $814,000
C) $851,000
D) $888,000

Question 52

Use the following to answer questions:
Abracadabra Co. manufactures magic sets. The sales planned for next year are 22,000 sets. Beginning material inventory is sufficient to produce 5,000 sets. Beginning work in process inventory is 1,000 sets that are 100 percent complete as to materials and 60 percent complete as to labor and overhead; there is no ending inventory. The finished goods inventory has a beginning inventory of 3,000 sets and a target inventory of 5,000 sets for December 31. The sets sell for $75. Direct materials cost $15; direct labor is $10; and manufacturing overhead is $12.

-What will be the total costs of direct materials used during the year?

A) $360,000
B) $345,000
C) $330,000
D) $315,000

Question 53

Each of the following are facility level costs expect:

A) Property taxes
B) Set-up costs
C) Air conditioning costs
D) Security guards

Question 54

Which of the following is not a shortcoming of participative budgeting?

A) It involves employees throughout the organization in the budgetary process
B) Too much participation and discussion can lead to vacillation and delay
C) When those involved in the process disagree significantly and irreconcilably, the participative process . can accentuate the differences
D) The problem of budget padding can be severe unless incentives for accurate projections can be provided

Question 55

Which of the following is not an ordering cost?

A) Clerical costs of preparing purchase order
B) Transportation costs
C) Insurance
D) Receiving costs

Question 56

Which of the following is not a holding cost?

A) Costs of storage space
B) Foregone interest on working capital tied up in inventory
C) Deterioration, theft, spoilage, or obsolescence
D) All are holding costs

Question 57

Which of the following is not a shortage cost?

A) Lost sales resulting in dissatisfied customers
B) Loss of quantity discounts on purchases
C) Disrupted production
D) Time spent finding suppliers and expediting orders

Question 58

Use the following to answer questions:
Hackett Co. uses an EOQ model to determine its purchase quantities for the year. The following information is available: annual demand 40,000 units of material; cost of placing an order $20; cost of carrying the material in inventory $10 per unit. The material costs $100 per unit.

-Using the EOQ formula, what is the order quantity (round to nearest whole unit)?

A) 894 units
B) 400 units
C) 354 units
D) 126 units

Question 59

Use the following to answer questions:
Hackett Co. uses an EOQ model to determine its purchase quantities for the year. The following information is available: annual demand 40,000 units of material; cost of placing an order $20; cost of carrying the material in inventory $10 per unit. The material costs $100 per unit.

-What is the number of orders that need to be placed and the annual holding cost (round to nearest whole number)?

A) 44 orders; $4,470
B) 50 orders; $2,500
C) 71 orders; $1,770
D) 100 orders; $2,000

Question 60

Use the following to answer questions:
Hackett Co. uses an EOQ model to determine its purchase quantities for the year. The following information is available: annual demand 40,000 units of material; cost of placing an order $20; cost of carrying the material in inventory $10 per unit. The material costs $100 per unit.

-What is the total annual cost of the inventory policy (round to nearest whole number)?

A) $4,000
B) $5,320
C) $6,260
D) $8,790

Question 61

The annual carrying costs are Refer To: 15-65

A) $36
B) $75
C) $1,200
D) $2,400

Question 62

The annual ordering costs are Refer To: 15-65

A) $36
B) $75
C) $1,200
D) $2,400

Question 63

Using the EOQ formula, the economic order quantity, rounded up to the nearest unit is Refer To: 15-65

A) 40
B) 142
C) 200
D) 347

Question 64

Pascal CO. has developed the following sales budget for the first six months of the coming year"

Required:
(1) Prepare production budgets for February, March and April
(2) Prepare purchase budgets for materials X and Y in units and dollars for the same months.
The beginning inventory on January 1 is 8,000 units. The desired ending inventory for the coming year is to be 25 percent of next month's sales.
Each unit requires 6 units of material X at $8 per unit and 3 units of material Y at $2 per unit. There are 99,000 units of X and 49,500 units of Y on hand January 1 and the desired ending inventory for these will be 30 percent of next month's needs for the coming year.

Question 65

The following information was pulled off the various schedules of the master budget prepared by Zamir Co. and other accounts for May:

Required:
(1) Prepare a budgeted income statement for May
(2) Prepare a budgeted balance sheet for May All materials purchased were used

Question 66

Ledford Corporation has the following information available from various schedules to prepare its cash budget for the June:
Receipts:
Sales (terms 2/10, net 30): May $90,000, June $100,000, July $120,000
Collection pattern: 65% in month of sale, 70% take the discount 35% in month after sale
Income from investments: May $500; June $750; July $350
Disbursements: all expenses are paid for when incurred. Materials are purchased and paid for in the month before they are used.

Required:
(1) Prepare the cash budget for June
(2) While you are not asked to prepare a budgeted cash flow statement, what similarities, if any, are there between the cash budget and a Statement of Cash Flow prepared under the direct method?

Question 67

Required:Prepare a schedule of cash disbursements for April, May, and June.
Commodore Company, a retailer, has developed the sales budget for the next six months of its rolling budget. Gross profit has averaged 35 percent of sales over the last 3 months and this trend is expected to continue. Purchases of merchandise are made a month before needed and are paid 60 percent in the month of purchase and 40 percent the following month. Wages, estimated at 10 percent of sales, are paid in the month of sale while operating expenses, 15 percent of sales, are paid in the month of the sale. There is a $63,000 balance in Accounts Payable on March 31, all of which is paid in April.

Question 68

The historical analysis of payment patterns of their customers has provided the following percentages:
50 percent in month of sale
35 percent in month after sale
10 percent in second month after sale
5 uncollectible
Payments made in the month of sale receive a 2 percent discount.
Required: Prepare a detailed Cash Collections from Sales Schedule for October, November, and December.
Prefetto Company is in the process of preparing its cash budget for the year. The sales forecast for the last six months of the year follows:

Question 69

Charmed Enterprises, a chocolate distribution company, prepares its master budget on a monthly and quarterly basis.
For the months of January, February and March, you are to compute the:
(a) Schedule of expected cash collections
(b) Inventory purchase budget and Cash Disbursements
(c) Cash budget
(1) Actual Sales in December were $60,000
(2) Budgeted Sales for January, February, March and April are

(3) Sales are collected at a rate of 30% for cash, and 70% on credit. All payments on credit sales are collected in the month following the sale. $42,000 is the balance in accounts receivable at December 31, 2005. The beginning cash balance is $10,000 with no loans outstanding.
(4) Beginning inventory at January 1, 2006 is $12,600
(5) The companies gross profit rate is 40%
(6) Monthly expenses are budgeted as follows:
(a) Shipping is 5% of sales
(b) Depreciation $2,000 per month ( c) Other expenses 6% of sales
(d) Salaries and Wages are fixed at $9,000 per month
(e) Advertising is $4,500
(7) In January, the company expects to purchase equipment of $11,000 and in February they expect to purchase equipment of $3,000 and $4,000 in March $4,000
(8) At the end of each month, inventory on hand should equal 30% of the following month's sales needs, stated at cost.
(9) December cash purchases for inventory were $36,600 . We pay for inventory ½ in the current month and ½ in the month following (therefore we will pay $18,300 in January for December purchases).
(10) The company is required by its loan covenants to maintain a cash balance of $10,000. Further, it has an open line of credit with the bank. To reduce banking transaction cost, borrowing must be done at the beginning of a month and all repayments must be made at the end of a month. Finally, loans and repayments of principal must be in multiples of $1,000. Interest is paid only at the time of repayment of principal. The annual interest rate is 6%.

Question 70

What are some of the behavioral issues that can arise when performance is evaluated by comparing actual results to the budget?

Question 71

The sales revenue budget is the starting point for the master budget. Because of its importance, forecasting the sales for the coming budget period is crucial.
Required:
(1) List at least five factors that are considered when forecasting sales.
(2) Briefly describe the two specific forecasting models discussed in the text: the Delphi method and econometric models.

Question 72

Briefly describe zero-base budgeting and contrast it with base budgeting.

Question 73

John, Stuart, Mills Company uses 10,000 units of material X per year. The material costs $100 per unit. The cost of placing an order is $160 and the cost of carrying a unit in inventory for a year is $20.
Required: (1) Prepare a tabular analysis to find the economic order quantity using the table format below.

(2) Find the EOQ using the formula approach.
(3) What might cause the answers as to the optimal order to quantity to differ between 1 and 2?

Question 74

Compare and contrast the EOQ model with just-in-time purchasing.

Question 75

Dierberg Company is a fast growing company with monthly sales for the current year estimated at a relatively steady upward trend. Past history has shown that all sales are collected within two months with negligible uncollectibles. The product for a given month is purchased partially in the month before sale and the rest during the month of sale and is paid for over a two month period. Property and income taxes are paid quarterly while other expenses are paid as incurred. The company has a desired ending cash balance for each month of $150,000 and, when necessary borrows to meet shortfalls and invests overages. The success of the company has been sudden and Ms. Hatley, the controller, is concerned about meeting the goals of the company without getting into serious short-term financial difficulties. As a result, she has been very conscientious about preparing the cash budget and keeping it up-to-date as conditions warrant. Required: Why is cash budgeting important for a rapidly expanding firm such as Dierberg Company?

Question 76

Adair Company has been busy over the first few years of its existence in penetrating its market and gaining a respectable market share. To facilitate this, Mr. Adair, the CEO, and his controller, Mr. Brown, have been developing the annual master budgets. To date this approach has worked well.
Adair has been acquired by a company in a related business but will continue to operate as an independent subsidiary. The CFO of the acquiring company, Mr. Horwitz, has suggested to Mr. Adair that, since it was expected that his company would continue to grow, it adopt a departmental budgeting system; a suggestion Mr. Adair agreed to readily. Mr. Horwitz explained to Adair's departmental managers the concepts of a departmental participative budgeting system and their involvement. The managers were encouraged to take the information and come back with suggestions which could then be put into a formal budget process.
Required:
(1) What benefits will accrue to Adair under this new budgeting system?
(2) What behavioral issues might arise for departmental managers and for production workers.
(3) What is the most probable long-term reaction of Adair's people to the participative budget system.

Question 77

Kessler and Son is a small business that, after struggling for a while, has taken off. Mr. Kessler Jr. has been attending various seminars to improve his business knowledge and has brought back several new ideas to see if they can be implemented in the company. One idea that he felt was very urgent to implement was for his father and him and others in managerial positions to sit down and develop a strategic plan and a budget process for the company. This had not been done when the company started so he would have to do some persuading to get the others accepting and involved. One other thing he had learned at one of his seminars was that something like this had to be accepted at the top before others would accept it.
Required: What kinds of issues should Mr. Kessler bring up to get his idea accepted?

Question 78

Ms. Alvarez, head of the Research and Development Department of Armco Company, is preparing the budget for her department for the next year. As part of her preparation, she started to look over the various projects in process and was surprised to see the number of projects that were still being funded although they were not moving forward. Since it was very difficult for her to go to a person and say their pet project would no longer be funded because it was going nowhere, she was looking for a more objective way to handle the issue. She had heard about zero-based budgeting and was considering adopting it, with her boss' approval.
Required: What kind of information should Ms. Alvarez bring to her boss to help win approval for her to change how she develops her budget? Also bring in the idea of base budgeting.

Question 79

Discuss budgeting, its role in strategic planning and the five purposes of budgeting systems.

Question 80

Moore Inc. manufactures a product that uses three different materials in the following amounts: 3 pounds of material A per unit at $2.00 per pound; 2 pints of material B per unit at $1.00 per pint; and 1 container at $15 per container. The company has 1,500 pounds of A, 1,200 pints of B and 500 containers on hand September 30 and wants an ending inventory equal to 120 percent of beginning inventory. The company expects to sell 3,000 containers of this product in October. Purchases of material are paid for in the month of purchase.
Required: How much materials have to be purchased in October and at what Cost?