Question

Marst Corporation's budgeted production in units and budgeted raw materials purchases over the next three months are given below: January February March Budgeted production (in units) 102,000 ? 80,000 Budgeted raw materials purchases (in pounds) 233,400 259,400 315,400 Two pounds of raw materials are required to produce one unit of product. The company wants raw materials on hand at the end of each month equal to 30% of the following month's production needs. The company is expected to have 25,000 pounds of raw materials on hand on January 1. Budgeted production for February should be: 211,400 units 96,000 units 151,000 units 48,000 units

Answer 1

Ans.	Option 3rd 151000 units
	We assumed that the required budgetedproduction in units = X
	Required raw material needed = Required production * raw materials required per unit
		X * 2
		2X
	Purchase of raw materials = Raw material needed + desired ending inventory - Beginning inventory
	259400   =   2X + 48000 - 0.6X
		259400 - 48000 = 2X - 0.6X
		1.4 X = 211400
		X    =   211400 / 1.4
		151000
	*Calculation of Production needs (Budgeted production in units * required per unit) :
	January	102000 * 2	204000
	March	80000 * 2	160000
	Desired ending invnetory for February   = March production needs * 30%
			160000 * 30%
			48000
	Beginning inventory = Ending inventory of January = February needs * 30%
		2X * 30%
		0.6 X