Question

Strawman Corp. produces reusable straws made out of bamboo. Their primary raw material is bamboo which they buy per meter. One meter of bamboo costs the company $4.

• The company has the following production budget for the year:
  • Q1: 25,000 straws
  • Q2: 35,000 straws
  • Q3: 50,000 straws
  • Q4: 10,000 straws
• One meter of bamboo can be used to make 25 straws.
• At the beginning of the year the company has the following starting inventory:
  • 200 meters of bamboo
• Management would like to maintain the raw materials inventories at 10% of next quarters budgeted production.

The purchase manager of Strawman Corp. wants to know how much bamboo (in meters) they should expect to buy for the 2nd quarter. What is your advice?

Answer 1

Answer)

Calculation of bamboo to be purchased in 2nd quarter

Bamboo to be purchased in 2nd quarter = (bamboo required in 2nd quarter X 90%) + ( bamboo required in 3rd quarter X 10%)

= (1,400 meters X 90%) + (2,000 meters X 10%)

= 1,460 meters

Therefore bamboo required to be purchased in 2nd quarter is 1,460 meters.

Working Notes:

Calculation of requirements of Bamboo in 2nd quarter:

Bamboo requirement in 2nd quarter = budgeted number of Straws to be produced/ number ofstraws produced from each unit of Bamboo

= 35,000 straws/ 25 straws per meter

=1,400 meters

Calculation of bamboo required in 3rd quarter:

Bamboo required in 3rd quarter = 50,000 straws/ 25 straws per meter

= 2,000 meters