Question

The following are budgeted data:January February March Sales in units 16,600 23,200 19,600Production in units 19,600 20,600 19,300One pound of material is required for each finished unit. The inventory of materials at the end of each month should equal 25% of the following month's production needs. Purchases of raw materials for February would be budgeted to be:

Answer 1

Answer:

The purchases of raw material for February are budgeted to be 20275 pounds.

Explanation:

The opening inventory of raw material in February should be equal to 25% of the production requirement for the month of February. Thus, the opening balance of raw material is,

Opening balance- Raw material = 0.25 * 20600   =  5150 pounds

Similarly, the closing inventory for raw material for the month of February should be equal to the 25% of production requirement for the month of March. Thus, the closing inventory of raw material in the month of February is,

Closing balance = 0.25 * 19300   =  4825 pounds

Purchases of raw material should be enough to produce enough units to meet February's production requirement after using the opening inventory of raw material along with having enough desired closing inventory of raw material. So, the purchases of raw material are,

Purchases = Closing inventory + Production - Opening Inventory

Purchases = 4825 + 20600 - 5150

Purchases = 20275 pounds