Question

ABC Company’s budgeted sales for June, July, and August are 12,400, 16,400, and 14,400 units, respectively....

ABC Company’s budgeted sales for June, July, and August are 12,400, 16,400, and 14,400 units, respectively. ABC requires 30% of the next month’s budgeted unit sales as finished goods inventory each month. Budgeted ending finished goods inventory for May is 3,720 units. Each unit that ABC Company produces uses 3 pounds of raw material. ABC requires 25% of the next month’s budgeted production as raw material inventory each month. Required: Calculate the number of pounds of raw material to be purchased in June.

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Answer #1

Ans:

Production=sales+ending finished inventory-beginning finished inventory

Raw material consumption=Production*raw material requirement per unit

Raw material purchases =Raw material consumption+ending inventory-Beginning inventory

Based on above

June Production

12,400 + (16,400 x 30%) – 3,720 = 13,600 units

July Production

16,400 + (14,400 x 30%) - (16,400 x 30%) = 15,800 units

June Raw Materials Purchased

(13,600 x 3pounds) + (15,800 x 3pounds x 25%) - (13,600 x 3 x 25%)

= 40,800 + 11,850 – 10,200

= 42,450 pounds to be purchased

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