Question

Sarafiny Corporation is in the process of preparing its annual budget. The following beginning and ending inventory levels are planned for the year.

	Beginning Inventory	Ending Inventory
Finished goods (units)	21,000	71,000
Raw material (grams)	51,000	41,000

Each unit of finished goods requires 2 grams of raw material. The company plans to sell 560,000 units during the year.

How much of the raw material should the company purchase during the year?

Multiple Choice

• 1,220,000 grams

• 1,210,000 grams

• 1,261,000 grams

• 1,231,000 grams

Answer 1

Option (b) is correct

First we will calculate total units to be produced during the year as per below:

Units to be produced = Units required for sale + Units required in ending inventory - Units required in beginning inventory

Units to be produced = 560000 + 71000 - 21000

Units to be produced = 610000

For 610000 units, raw material needed = 610000 * 2 = 1220000 grams

Next, we will calculate the raw material to be purchased during the year as per below:

Raw material to be purchased = Raw material needed during the year + Ending raw material - Beginning raw material

Raw material to be purchased = 1220000 + 41000 - 51000

Raw material to be purchased = 1210000 grams