Question

Garry's Corporation's most recent production budget indicates the following required production:

	October	November	December
Required Production (units)	210,000	175,000	110,000

Each unit of a finished product requires 5 pounds of raw materials. The company maintains raw materials inventory equal to 25% of the next month's expected production needs. How many pounds of raw material should Garry plan on purchasing for the month of November?

A. 893,500

B. 793,750

C. 1,006,250

D. 1,012,500

I know the answer is B, but I'm not quite sure how to get the answer. Thanks in advance! :)

Answer 1

A	B	C	D	E	F	G	H	I	J	K
2
3		Direct material amount to be purchased can be calculated as follows:
4		Direct material amount to be purchased	= Amount required for production + Ending Inventory Required - Beginning Inventory
5
6		Direct Materials Purchase Budget		Oct	Nov	Dec
7		Units to be produced		210000	175000	110000
8		Amount of materials required for production (Pound)	5	1050000	875000	550000
9		Desired Ending Inventory of Material	25%	218,750.00	137,500.00
10		Total Material needed			1,012,500.00
11		Less Beginning Inventory			218,750.00
12		Total Material needed to be purchased			793,750.00
13		Note: Last period ending inventory will be current period beginning inventory.
14
15		Hence
16		Total material required is	793,750.00
17
18

Formula sheet

A	B	C	D	E	F	G	H	I	J	K
2
3		Direct material amount to be purchased can be calculated as follows:
4		Direct material amount to be purchased	= Amount required for production + Ending Inventory Required - Beginning Inventory
5
6		Direct Materials Purchase Budget		Oct	Nov	Dec
7		Units to be produced		210000	175000	110000
8		Amount of materials required for production (Pound)	5	=E7*$D$8	=F7*$D$8	=G7*$D$8
9		Desired Ending Inventory of Material	0.25	=F8*$D$9	=G8*$D$9
10		Total Material needed			=SUM(F8:F9)
11		Less Beginning Inventory			=E9
12		Total Material needed to be purchased			=F10-F11
13		Note: Last period ending inventory will be current period beginning inventory.
14
15		Hence
16		Total material required is	=F12
17
18