Alder Company budgets on an annual basis. The following beginning and ending inv

Question

Alder Company budgets on an annual basis. The following beginning and ending inventory levels (in units) are planned for the next year. Two units of raw materials are required to produce each unit of finished product.

January 1 December 31

Raw material 245,000 315,000

Work in process 84,000 84,000

Finished goods 560,000 350,000

Required:

1) If Alder Company plans to sell 3,360,000 units during the year, compute the number of units the firm would have to manufacture during the year.

2) If 3,500,000 finished units were to be manufactured by Alder Company during the year, determine the amount of raw material to be purchased.

Explanation / Answer

1. the number of units the firm would have to manufacture during the year is given by :- Open Inv of Finish Good = 560,000 Add: Goods Mfd : ??? Less : Goods Sold : 3360,000 ---------------------- CLosing Inv : = 350,000 SO Good sMfd = 350,000+3360,000 - 560,000 = 3150,000.............(ans 1) 2. 3,500,000 finished units will need @2 units of Raw Mat pu, so total Raw mat needed is 3500,000*2 = 7000,000 units So Opening Inv of RM = 245000 Add: RM Purchs : ??? Less: RM consumed : 7000,000 ------------------------ Closing inv of RM = 315,000 So RM Purch = 315,000+7000,000-245,000 = 7070,000..............ans 2

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