Question

Adham Company has budgeted to produce 20,000 units in January and 30,000 units in February. Two pounds of material A are required for each unit produced. The company has a policy of maintaining a stock of material A on hand at the end of each month equal to 20% of the next month's production needs for material A. A total of 8,000 pounds of material A are on hand to start the year. Budgeted purchases of material A for January would be:

Select one:

a. 30,000 pounds

b. 165,000 pounds

c. 22,000 pounds

d. 44,000 pounds

Answer 1

Closing inventory of material A

= 20%*Next month requirement of material A

Next month units production is 30,000 units

Each unit require 2 pounds of Material A

Material A required

= 30,000*2

= 60,000 pounds

Closing inventory

= 20%*60,000

= 12,000 pounds

Opening inventory = 8,000 units

Production units in January = 20,000 units

Material A require = 20,000*2 = 40,000 pounds

Budgeted purchase of material A

= Material A require - Opening inventory + Closing inventory

= 40,000 - 8,000 + 12,000

= 44,000 pounds

Therefore the correct option is D

If you find the answer helpful please upvote.