Question

Marst Corporation's budgeted production in units and budgeted raw materials purchases over the next three months are given below:

	January			February		March
Budgeted production (in units)	70,100			?		80,500
Budgeted raw materials purchases (in pounds)	193,353			153,100		159,300

Three pounds of raw materials are required to produce one unit of product. The company wants raw materials on hand at the end of each month equal to 21% of the following month's production needs. The company is expected to have 44,163 pounds of raw materials on hand on January 1. Budgeted production for February should be:

Multiple Choice

102,185 units A

43,200 units B

80,500 units C

81,100 units D

Answer 1

Answer

• Budgeted raw material purchases (in pounds) = (Budgeted unit production x raw material required per unit) + Desired ending raw material inventory – Beginning raw material inventory.
• January calculation (of raw material ending inventory)

Budgeted raw material purchases (in pounds) = (Budgeted unit production x raw material required per unit) + Desired ending raw material inventory – Beginning raw material inventory.

193,353 = (70,100 x 3 pounds) + Ending Inventory – 44,163

193353 = 210300 + Ending Inventory – 44163

193353 – 210300 + 44163 = Ending Raw material inventory for January.

Ending raw material inventory for January = 27,216 pounds.

• Given that Ending inventory of raw material of a month equals to 21% of next month’s budgeted production’s requirement.

Hence, required raw material (in pounds) for February = 27,216 pounds / 21% = 129,600 pounds.

• Also given that each units required 3 pounds of raw material.

Hence, budgeted production units in February = 129,600 pounds / 3 pounds = 43,200 units

• The CORRECT ANSWER = Option ‘B’: 43,200 units.