Marst Corporation\'s budgeted production in units and budgeted raw materials pur

Question

Marst Corporation's budgeted production in units and budgeted raw materials purchases over the next three months are given below:

Two pounds of raw materials are required to produce one unit of product. The company wants raw materials on hand at the end of each month equal to 30% of the following month's production needs. The company is expected to have 23,000 pounds of raw materials on hand on January 1. Budgeted production for February should be:

rev: 10_27_2016_QC_CS-67319

250,600 units

96,000 units

48,000 units

179,000 units

January February March Budgeted production (in units) 118,000 ? 80,000 Budgeted raw materials purchases (in pounds) 272,600 298,600 354,600

Explanation / Answer

Solution: Answer is 4th option 179,000 units Working Notes: Let X be the Budgeted production units. So, Beginning raw material Inventory = February budgeted production units x 2 x 30% = X x 2 x 30% =0.6 X Ending Raw material inventory = March budgeted production units x 2 x 30% =80,000 x 2 x 30% =48,000 February production required raw material = Budgeted production units. x 2 = 2X Budgeted raw materials purchases for February = Ending Raw material inventory + February production required raw material - Beginning raw material Inventory 298,600 = 48,000 + 2X - 0.6 X 298,600 = 48,000 + 1.4X X=(298,600 - 48,000)/1.4 X=250,600/1.4 X=179,000 units Please feel free to ask if anything about above solution in comment section of the question.

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