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there are a 140 pounds of flour in inventry on october 1. 1400 loaves are to be produced in october and 1500 loaves in november. flour costs $3 per pound and 1/2 pound is used per loaf. with the policy of 20% of next month's needs being in ending inventory, what is the budget for flour purchases in october

Answer :

Shahzaibfaraz

Answer:

The budgeted floor purchases for October is 710 pounds and the cost of 710 pounds of flour is $2130

Explanation:

The flour needed to meet the October's production requirement for loaves is,

1400 * 1/2  =  700 pounds

The desired ending inventory of flour in October = 1500 * 1/2 * 0.2 = 150 pounds

The purchases for October should be enough to meet the desired ending inventory for October and the remaining Production requirement for October after adjusting for opening inventory .

Purchases = Closing Inventory + Production - Opening Inventory

Purchases = 150 + 700 - 140   =  710 pounds

The cost of purchases = 710 * 3  =  $2130

The planned flour purchases for October are 710 pounds and the cost for total flour is $2130.

Given that,

  • Opening stock is 140 pounds.
  • Flour cost $3 per pound and 1/2 pound is used per loaf.
  • In October, production are 1400 loaves and in November, production will be 1500 loaves.
  • Safety stock of 20% of next month needs to be maintained.

According to the scenario, computation of given data are as follows,

Flour needs for October production = 1,400 loaves [tex]\times[/tex] 1/2 pound

=  700 pounds

Flour needs for 20% of November production = (1,500 loaves [tex]\times[/tex] 1/2 pounds) [tex]\times[/tex] 20%

= 150 pounds

So, total purchase of flour in October will be as follows,

Purchases = 20% Inventory of Nov. + Current month production - Opening stock

By putting the value, we get,

Purchases = 150 Pounds + 700 pounds - 140 Pounds  

=  710 pounds

So, cost of 710 pound flour purchases = 710pounds [tex]\times[/tex] $3  

=  $2,130

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