Answer (B) is correct . The inventory of tricycles is expected to increase from 800 units to 1,000 units, an increase of 200 units. Adding this 200-unit inventory increase to the projected sales of 96,000 results in total production of tricycles of 96,200 units. The inventory of bicycles is expected to decline from 2,150 to 900, a decrease of 1,250 units. Subtracting this inventory decline from the 130,000 units of projected sales results in expected production of 128,750 units. Given that each tricycle and bicycle requires two units of A19, the necessary units of the component can be calculated by adding the 96,200 tricycles to the 128,750 bicycles, a total production of 224,950. Multiplying this total production level times the two components required results in a total of 449,900 components. Combining the 449,900 units of A19 needed for production with the desired inventory decrease of 1,500 units (3,500 – 2,000) indicates that 448,400 components must be purchased. At $1.20 per unit, the total cost of 448,400 units is $538,080.
Answer (A) is incorrect because The cost of the units of A19 needed for bicycle production is $309,000.
Answer (C) is incorrect because The amount of $540,600 ignores the change in the inventory levels of finished units of tricycles and bicycles.
Answer (D) is incorrect because The amount of $2,017,800 is based on the price of B12 ($4.50).
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The budgeted dollar value of Wellfleet Company’s purchases of component A19 for the fiscal year ending June 30, Year 2 is