Detailed Answer
Correct answer: (D)
This is a very large question with a couple of minor details that are essential to getting the question
correct. It is, however, the same basic premise as the previous questions about how many units need to be
produced or purchased. The first thing that we need to do is determine how many bicycles and tricycles need
to be produced. The number of bicycles that will be sold is 130,000. However, during the period, inventory
will decrease by 1,250 units, so this means that only 128,750 bicycles will be produced. The sales oftricycles
will be 96,000, but during the year inventory will increase by 200, so production needs to be 96,200. We now
need to calculate how many of part A19 will be needed during the period. There are 2 A19 In a bicycle and 2
in a tricycle. This is a total of 449,900 units of A19 ((128,750 x 2) + (96,200 x 2» .
We are told that the ending inventory for A19 is 2,000 and the beginning inventory is 3,500. 50, 448,400
units must be purchased during the period (449,900 + 2,000 - 3,500). At a cost of $1.20 per unit, this is a
total budgeted cost of $538,080.