Choice "D" is correct. January tire requirements are 26,680 tires. NOTE that this question is very detailed and quite confusing in parts. We suspect that it will be rare for something of this nature to appear frequently on the CPA Exam (which is likely a reason they released the question). There are multiple steps in computing the raw materials requirements.

1. Determine the amount of raw materials transferred out by computing the amount of finished goods transferred in:

   1. Compute the ending balance of January Finished Product at 3,200 (February sales x 20%) per company policy.

   2. Use the beginning balance (given) and January sales (given) to squeeze out 13,200 bicycles transferred in.

   3. Multiply 13,200 by 2 tires per bicycle to arrive at the number of tires transferred out of Work in Process in January.

2. Use January ending finished product data and March sales data to arrive at February production requirements and, by extension, the required ending balance for January's raw materials inventory:

   1. January finished goods ending balance is February finished goods beginning balance.

   2. Compute the ending balance of February Finished Product at 3,600 (March sales x 20%) per company policy.

   3. Use the beginning balance (computed) and February sales (given) to squeeze out 16,400 bicycles transferred in (production requirements).

   4. Multiply 16,400 by 2 tires per bicycle to arrive at the number of tires needed for production requirements in February and multiply by 10% to compute the raw materials ending balance for January at 3,280 in accordance with company policy.

3. Compute tire requirements (purchases) for January based on computed ending balance and computed transfers to finished goods in January and beginning inventory (given):

   1. Ending balance, 3,280 + Raw materials transferred to finished goods, 26,400 - beginning inventory, 3,000.

Choice "b" is incorrect. The proposed solution anticipates purchases will be equal to the amount of sale in January (x 2) plus the change in inventory if we incorrectly assume production requirements for February are also equal to sales.Choice "c" is incorrect, per the above computations.Choice "a" is incorrect. The proposed solution bases raw materials ending inventory upon January rather than February production requirements.