Question

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

	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

	Correct option is: A. 45,200 units
	Workings:
	Let Expected production units be X	February
A	Required Raw material for production (3 * X)	3X
B	Add: Desired ending inventory (82500 * 3 * 21%)	51,975
C	Total inventory needed (A + B)	3X + 51975
D	Less: Beginning Inventory ( X * 3 * 21%)	0.63X
E	Required Purchase of raw material (D - E)	1,59,100
	159100 = 3X + 51975 - 0.63X
	2.37X = 107125
	X = 45200