Here is another one: BDH Corporation, which makes only one product, Kisty, has the following information available for the coming year. BDH expects sales to be 30,000 units at $50 per unit. The current inventory of Kisty is 3,000 units. BDH wants an ending inventory of 3,500 units. Each unit of Kisty takes two units of component L. Component L is estimated to cost $12 per unit. Current inventory of L is 4,000 units. BDH wants 6,000 units of L on hand at the end of the next year. What is the budgeted ending inventory cost for direct materials for the next year?
72,000.
To calculate the budgeted ending inventory cost for direct materials for the next year, we need to determine the number of units of component L required for the next year and then multiply it by its cost per unit.
1. Compute the total units of Kisty required for the next year:
- BDH expects to sell 30,000 units.
- The current inventory of Kisty is 3,000 units.
- BDH wants an ending inventory of 3,500 units.
- Therefore, the total units of Kisty required will be:
30,000 + 3,500 - 3,000 = 30,500 units
2. Determine the total units of component L required:
- Since each unit of Kisty requires two units of component L, we need to multiply the total units of Kisty required by 2:
30,500 units * 2 = 61,000 units of component L
3. Calculate the change in inventory of component L:
- BDH wants 6,000 units of component L on hand at the end of the next year.
- The current inventory of L is 4,000 units.
- Therefore, the change in inventory of component L will be:
6,000 - 4,000 = 2,000 units
4. Compute the total units of component L to be purchased:
- To determine the total units of component L to purchase, we need to add the total units required (computed in step 2) to the change in inventory (computed in step 3):
61,000 + 2,000 = 63,000 units
5. Calculate the budgeted ending inventory cost for direct materials:
- The cost per unit of component L is provided as $12.
- Multiply the total units of component L to be purchased (computed in step 4) by the cost per unit:
63,000 units * $12 = $756,000
Therefore, the budgeted ending inventory cost for direct materials for the next year is $756,000.