2. A company has budgeted production for 20X4 as shown below. BUDGETED PRODUCTIO

Question

2. A company has budgeted production for 20X4 as shown below. BUDGETED PRODUCTION IN UNITS FOR YEAR 20X4 3 4 Quarter Production in Units 15,000 13,000 12,000 10,000 Three pounds of raw materials are required for each unit produced. Raw materials on hand at the beginning of 20X4 equals 9,000 pounds. The ravw materials inventory at the end ofeach quarter should equal 20% of the next quarter's production needs in materials. Budgeted purchases of raw materials in the second quarter would be (in pounds): (a) 38,400. (b) 39,000. (c) 46,200. (d) 12,800.

Explanation / Answer

a.$38,400.

direct material purchases = production requirement + closing stock - opening stock

here,

production requirement = 13,000 units * 3 pounds raw materials => 39,000 pounds

closing stock = next quarters requirement * 20% => [12,000 * 3 pounds]*20% =>7,200 pounds

opening stock = current month's requirement *20%....(since opening stock is last months closing stock).

=>[13,000 * 3 pounds]*20% =>7,800 pounds

now,

budgeted material purchase = production requirement + closing stock - opening stock

=>39,000 + 7,200 - 7,800

=>38,400 pounds

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