Alliance Company budgets production of 34,000 units in January and 38,000 units in February. Each finished unit requires 3 pounds of raw material K, which costs $3.00 per pound. Each month's ending raw materials inventory should equal 40% of the following month's budgeted materials. The January 1 inventory for this material is 40,800 pounds.

What is the budgeted materials needed in pounds for January?

A. 147,600 pounds
B. 106,800 pounds
C. 102,000 pounds
D. 86,400 pounds

The budgeted materials needed in pounds for January at Alliance Company is 106,800 pounds. This number is calculated by adding the needed raw materials for January's production and the inventory set for the end of the month, then subtracting the existing inventory at the beginning of January.

Explanation:

The budgeted materials needed in pounds for January at Alliance Company is 106,800 pounds.

Here's a step-by-step explanation: First, calculate the total raw materials required for production in January, which is 34,000 units times 3 pounds per unit, resulting to 102,000 pounds. Now, we have to consider that the company wants to maintain an ending inventory equal to 40% of the following month's production. In February, the company plans to manufacture 38,000 units. Again, each unit requires 3 pounds of raw material. Therefore, for February, we need 114,000 pounds of raw material. The company wants to end January with 40% of this quantity. Thus, at the end of January, we should have 45,600 pounds of raw material. As such, in January, the company needs to have enough material for its production (102,000 pounds) and to keep in inventory (45,600 pounds), which totals 147,600 pounds. However, the company already had an inventory of 40,800 pounds at the beginning of January.

In conclusion, to find the budgeted materials needed in January, subtract this existing inventory from the total required material (147,600 - 40,800 = 106,800 pounds).

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