Question

Prestwich Company has budgeted production for next year as follows:

	Quarter
	First	Second	Third	Fourth
Production in units	90,000	110,000	120,000	100,000

    
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 quarter equal to 40% of the next quarter's production needs for material A. A total of 72,000 pounds of material A are on hand to start the year. Budgeted purchases of material A for the second quarter would be:

228,000 pounds

308,000 pounds

316,000 pounds

212,000 pounds

Answer 1

	First	Second
Production in units	90,000	110,000
Pounds of material required for each unit produced	2	2
Pounds of materials required for production	180,000	220,000
Pounds of materials in ending inventory	88,000 (220,000*40%)	96,000 (240,000*40%)

Ending inventory in the first quarter is the beginning inventory in the second quarter.

Budgetd purchases of Materials A = Materials required for production + Ending inventory - Beginning inventory

= 220,000 + 96,000 - 88,000

= 228,000 pounds