Question

Bodin Company budgets on an annual basis. The following beginning and ending inventory levels (in units) are plannned for the year 20x1. Three units of raw material are required to produce each unit of finished product.

	January 1			December 31
Raw material		43,000			49,000
Work in process		13,000			13,000
Finished goods		82,000			75,000

Required:

1. If Bodin Company plans to sell 464,000 units during the year, compute the number of units the firm would have to manufacture during the year.

2. If 508,000 finished units were to be manufactured by Bodin Company during the year, determine the amount of raw material to be purchased.

Required production in units ---- 457,000

Raw Material purchases in units --- ??

Answer 1

2.

Raw material, beginning = 43,000 units

Raw material, ending = 49,000 units

Production = 508,000 units

Three units of raw material are required to produce each unit of finished product.

Raw material procurement budget (Direct materials budget)

Raw material consumed (Production x raw material per unit of finished goods)	508,000 x 3 = 1,524,000
+ Ending inventory of raw material	49,000
Total units of raw material needed	1,573,000
- Beginning inventory of raw material	- 43,000
Raw material purchase	1,530,000

Amount of raw material to be purchased = 1,530,000 units