Upham company has budgeted production for next year as follows: Quarter First Se

Question

Upham company has budgeted production for next year as follows:

Quarter First Second Third Fourth

Productuon in Units 60,000 80,000 90,000 70,000

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 quater equal to 25% of the next quarters production needs for material A. A total of 30,000 pounds of material A are on hand to start the year. Budgeted purshases for material A for the second quarter would be:

A.)82,500 pounds

B.)165,000 pounds

C.)200,000 pounds

D.)205,000 pounds

Explanation / Answer

The answer is B.

lbs need for 2nd quarter: 160,000 (80,000 units x 2 lbs/unit)

Add desired ending inventory: 45,000 (190,000 x 25%)

Total lbs needed: 205,000

Less beginning inventory: 40,000 (160,000 x 25%)

2nd quarter purchases: 165,000 lbs

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