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)	118,000	?	80,000
Budgeted raw materials purchases (in pounds)	272,600	298,600	354,600

Two 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 30% of the following month's production needs. The company is expected to have 23,000 pounds of raw materials on hand on January 1. Budgeted production for February should be:

rev: 10_27_2016_QC_CS-67319

250,600 units

96,000 units

48,000 units

179,000 units

Answer 1

Solution:
	Answer is 4th option 179,000 units
Working Notes:
	Let X be the Budgeted production units.
	So, Beginning raw material Inventory = February budgeted production units x 2 x 30%
		= X x 2 x 30%
		=0.6 X
	Ending Raw material inventory = March budgeted production units x 2 x 30%
		=80,000 x 2 x 30%
		=48,000
	February production required raw material = Budgeted production units. x 2
		= 2X
	Budgeted raw materials purchases for February = Ending Raw material inventory + February production required raw material - Beginning raw material Inventory
	298,600 = 48,000 + 2X - 0.6 X
	298,600 = 48,000 + 1.4X
	X=(298,600 - 48,000)/1.4
	X=250,600/1.4
	X=179,000 units
Please feel free to ask if anything about above solution in comment section of the question.