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 42,000 pounds of raw materials on hand on January 1. Budgeted production for February should be:

January February March Budgeted production (in units) 70,000 ? 80,000 Budgeted raw materials purchases (in pounds) 142,400 151,600 158,800

Explanation / Answer

Budgeted production for February

the answer would be 74000 units

Required production in units is X

Raw material required /unit 2

Raw material needed to meet the production 2X

Add desired raw material at ending (80000units X 2 X0.30) 48000

total raw material needed 48000+2X

less beginning inventory (Xunits * 2units *30%) 0.60X

Raw material purchased 151600

so 151600=48000+2X-0.60X

by solving the equation we get 74000 units

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