Question

	January			February		March
Budgeted production (in units)	70,500			?		82,500
Budgeted raw materials purchases (in pounds)	195,561			159,100		161,300

Three 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 21% of the following month's production needs. The company is expected to have 44,415 pounds of raw materials on hand on January 1. Budgeted production for February should be:

Multiple Choice

• 45,200 units

• 83,100 units

• 82,500 units

• 106,925 units

Answer 1

Answer: 45,200 units

Explanation

Desired ending raw materials inventory = 82,500 units x 3 pounds per unit x 21%

= 51,975

Let, Required production in units = "x"

Raw materials needed to meet the production = Required production in units x Raw materials required per unit

= x * 3

= 3x

Beginning raw materials inventory = x units * 3 pounds per unit * 21%

= 0.63x

Raw materials to be purchased in February = 159,100

Budgeted production for February

159,100 = 51,975 + 3x - 0.63x

2.37x = 107,125

x = 107,125 / 2.37

= 45,200 units

Therefore, Budgeted production for February = 45,200 units