Question

The following are budgeted data:


Sales in Units: Month 1 = 15,000; Month 2 = 20,000; Month 3 = 18,000
Production in Units: Month 1 = 16,000; Month 2 = 22,000; Month 3 = 15,000

One pound of material is required for each finished unit. The inventory of materials at the end of each month should equal 20% of the following month's production needs. At the beginning of Month 1, 3,200 lbs. of materials were on hand. Purchases of raw materials for Month 2 would be budgeted to be:

Question 11 options:

	17,600 pounds
	23,400 pounds
	20,600 pounds
	25,000 pounds

Answer 1

Following will be the quantity of material required for month 2 :-

Particulars	quantity
Total units required for production for month 2	22000 (1x22000)
+ Total units required as closing inventory	3000 (15000x20%)
(-) total units already available as opening inventory as on month 2	(4400) [22000x20%)
Total material required to be purchased for month 2	20600 pounds

Thus, correct option is (c) . 20600 Pounds of raw material is required to be purchased for month 2.