Question

ABC Company makes and sells a single product. It requires
4 pounds of direct materials to produce one unit of this
product. Budgeted units to be produced for the next four
months is given below:

                  Budgeted Units to be Produced            
July                      ?????? units
August                    17,000 units
September                 44,000 units
October                   28,000 units

The company wants to maintain monthly ending inventories of
direct materials equal to 28% of the next month's production
needs. The cost of direct materials is $3.25 per pound.

It was budgeted that ABC Company would purchase $557,960 of
direct materials in July.

Calculate the number of units budgeted to be produced in July.

Answer 1

Total cost of purchase of direct materias in July = $557960

Cost of direct material per pound = $3.25

total direct material can be purchased = 557960/3.25 =171680

pound per product = 4

total number of products can be produced from these = 42920

28 % of the next months production which is the closing stock  = 4760

balance = 38160

now lets assume that the budgeted goods produced in july = X

budgeted goods produced in july = X = 38160 + 28% of X ( which is the opening inventory maintained)

X = 38160 + 28% of X

72% X = 38160

X = (38160*100)/72 = 53000

 number of units budgeted to be produced in July = 53000