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Producing 1,000 statues needs 8.6 pounds of metal each. Desired ending metal is 300 pounds, beginning metal is 1,800 pounds and metal costs $6 per pound. What is the cost of metal to be purchased?
A$51,600
B$53,400
C$42,600
D$46,800
Answer & Solution
Correct answer: C. $42,600
1. Pounds required for production are 1,000 units times 8.6 pounds, which is 8,600 pounds.
2. Desired ending inventory of 300 pounds is added, giving total pounds needed of 8,900.
3. Beginning inventory of 1,800 pounds is already in stock and need not be bought.
4. Pounds to be purchased are 8,900 minus 1,800, which is 7,100 pounds.
5. Total purchases cost is 7,100 pounds times $6 per pound, which is $42,600.
6. $51,600 is the cost of materials added to production, a different figure that comes later in the chain.
7. $53,400 is the cost of direct materials available for use, which includes the opening stock.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 7.6 Sales Budget_
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