Question

Madrid Inc. has the following budgeted production in units for the next four months: Units Month...

Madrid Inc. has the following budgeted production in units for the next four months: Units Month Produced June 90,000 July 120,000 August 210,000 September 150,000 Two pounds of raw materials are required for each unit produced. Ending raw materials inventory should equal 30% of next month’s production needs. Raw materials inventory on June 1st was 54,000 pounds. Madrid's total required raw material purchases in pounds for July are: Group of answer choices are

240,000

158,000

366,000

294,000

Business   Accounting   
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Answer #1

Solution

Madrid Inc

Determination of total required raw material purchases in pounds for July:

July

August

Budgeted production in units

120,000

210,000

raw materials per unit

2 pounds

2 pounds

budgeted production, pounds

240,000

420,000

add: ending inventory

30% x 420,000 = 126,000

raw material needs

366,000 pounds

less: beginning inventory

72,000

raw materials needed for production

294,000 pounds

Hence, raw material purchases in pounds for July = 294,000

Note – beginning inventory for July = 120,000 units x 2 pounds x 30% = 72,000

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