Prester Corporation has budgeted production for next year as follows: Two pounds

Question

Prester Corporation has budgeted production for next year as follows:

Two pounds of material A are required for each unit produced. The company has a policy of maintaining a stock of material A on hand at the end of each quarter equal to 25% of the next quarter's production needs for material A. A total of 31,000 pounds of material A are on hand to start the year. Budgeted purchases of material A for the second quarter would be:

194,800 pounds

197,400 pounds

244,150 pounds

200,000 pounds

Quarter First Second Third Fourth Production in units 64,200 98,700 93,500 96,600

Explanation / Answer

A. 194,800 pounds

Second Quarter Required production in units 98,700 Raw materials required per unit 2 Raw materials needed to meet the production 197,400 Add desired ending raw materials inventory(93,500 units × 2 pounds per unit × 25%) 46,750 Total raw materials needs 244,150 Less beginning raw materials inventory(98,700 units × 2 pounds per unit × 25%) 49,350 Raw materials to be purchased 194,800

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