Ajax Manufacturing - Budget

Ajax Manufacturing produces a single product, which takes 8.0 pounds of direct materials per unit produced. Assume that it is currently at the end of the first quarter of the year, and there are 50,000 pounds of material on hand. The company’s policy is to maintain an end-of-quarter inventory of materials equal to 25 percent of the following quarter’s material requirements for production. How many units of product were produced in the first quarter of the year? Under the assumption that production will increase by 10 percent in the second quarter, what are the direct materials requirements (in pounds) for planned production in the second quarter?

Expert Solution

Part 1:

Closing balance DM inventory - Q1	50000	pounds	25%
Total DM inventory for Q1	50000 x(100/25) = 200,000	pounds	100%
DM inventory used per unit	8	pounds
Number of units produced in Q1	200,000 / 8 = 25,000	units

Part 2:

Expected units produced in Q2	25,00 x 110% = 27,500	units
DM required for production	27,500 x 8 pounds = 220,000	pounds
Add: 25% closing balance requirement	220,000 x 25% = 55,000	pounds
Total DM requirements for Q2	220,000 + 55,000 = 275,000	pounds

ekkarill92 answered 2 years ago

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