Question

Saphire Company budgeted the following production in units for the second quarter of the year:April45,000May38,000June42,000Each unit requires one pound of raw material. Saphire's policy is to have 30% of the following month's production needs for materials in inventory.A) Raw materials purchases budgeted for May in pounds equal:a) 39,200b) 45,600c) 50,600d) 42,900B) Desired beginning inventory for June in pounds equals:a) 9,575b) 12,600c) 10,500d) 11,400

Answer 1

Answer:

Option (a) is correct

Option (b) is correct.

Explanation:

In April:

Total raw material needed for production:

= Production units × raw material required for one unit of FG pound

= 45,000 × 1

= 45,000 pounds

Closing raw material to be maintained = 30% of 38,000

                                                                = 11,400

In May:

Total raw material needed for production:

= Production units × raw material required for one unit of FG pound

= 38,000 × 1

= 38,000 pounds

Raw material to be purchased:

= Total raw material needed for production + Closing raw material to be maintained - Opening raw material

= 38,000 + (42,000 × 30%) - 11,400

= 38,000 + 12,600 - 11,400

= 39,200 pounds

In June:

The Desired beginning inventory for June is equal to the closing inventory of May, i.e, 12,600 pounds.