Sarter Corporation is in the process of preparing its annual budget. The following beginning and ending inventory levels are planned for the year. Each unit of finished goods requires 3 grams of raw material. The company plans to sell 880,000 units during the year. How much of the raw material should the company purchase during the year?
A)2,550,000 grams
B)2,490,000 grams
C)2,480,000 grams
D)2,500,000 grams

Question

Sarter Corporation is in the process of preparing its annual budget. The following beginning and ending inventory levels are planned for the year.  Each unit of finished goods requires 3 grams of raw material. The company plans to sell 880,000 units during the year. How much of the raw material should the company purchase during the year?
A)2,550,000 grams 
B)2,490,000 grams 
C)2,480,000 grams 
D)2,500,000 grams

Quizplus · Accepted Answer

First, we need to calculate the total amount of raw material required for the production of 880,000 units of finished goods.

Amount of raw material required per unit of finished goods = 3 grams

Total amount of raw material required for 880,000 units = 3 x 880,000 = 2,640,000 grams

Now, to calculate the amount of raw material that the company should purchase during the year, we need to subtract the ending inventory level of raw material from the total amount of raw material required and add the beginning inventory level of raw material.

Total amount of raw material required = 2,640,000 grams

Ending inventory level of raw material = 170,000 grams

Beginning inventory level of raw material = 310,000 grams

Amount of raw material to be purchased during the year = Total amount of raw material required – Ending inventory level + Beginning inventory level

= 2,640,000 – 170,000 + 310,000

= 2,500,000 grams

Therefore, the company should purchase 2,500,000 grams of raw material during the year. The correct answer is D.

Sarter Corporation Is in the Process of Preparing Its Annual