Prestwich Company has budgeted production for next year as follows: Two pounds o

Question

Prestwich Company 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 40% of the next quarter's production needs for material A. A total of 72,000 pounds of material A are on hand to start the year. Budgeted purchases of material A for the second quarter would be:

228,000 pounds

308,000 pounds

316,000 pounds

212,000 pounds

Quarter First Second Third Fourth   Production in units 90,000        110,000      120,000      100,000     

Explanation / Answer

Ending inventory in the first quarter is the beginning inventory in the second quarter.

Budgetd purchases of Materials A = Materials required for production + Ending inventory - Beginning inventory

= 220,000 + 96,000 - 88,000

= 228,000 pounds

First Second Production in units 90,000 110,000 Pounds of material required for each unit produced 2 2 Pounds of materials required for production 180,000 220,000 Pounds of materials in ending inventory 88,000 (220,000*40%) 96,000 (240,000*40%)

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