The Jung Corporation's production budget calls for the following number of units to be produced each quarter for next year:$\begin{array}{lrr}
\text { Budgete}&\text { dproduction }\
\text {Quarter 1. } & \text {45,000 units}\
\text { Quarter 2 } &\text {38,000 units}\
\text { Quarter 3. } &
\text {34,000 units}\
\text { Quarter 4 } & \text {48,000 units}\
\end{array}$

Each unit of product requires three pounds of direct material. The company's policy is to begin each quarter with an inventory of direct materials equal to 30% of that quarter's direct material requirements. Budgeted direct materials purchases for the third quarter would be

A)114,600 pounds.
B)89,400 pounds.
C)38,200 pounds.
D)29,800 pounds.

Question

The Jung Corporation's production budget calls for the following number of units to be produced each quarter for next year:$\begin{array}{lrr}
\text { Budgete}&\text {  dproduction }\
  \text {Quarter 1.  } & \text {45,000 units}\
 \text { Quarter 2 } &\text {38,000 units}\
 \text { Quarter 3. } &
 \text {34,000 units}\
 \text { Quarter 4 } & \text {48,000 units}\
\end{array}$

Each unit of product requires three pounds of direct material. The company's policy is to begin each quarter with an inventory of direct materials equal to 30% of that quarter's direct material requirements. Budgeted direct materials purchases for the third quarter would be

A)114,600 pounds.
B)89,400 pounds.
C)38,200 pounds.
D)29,800 pounds.

Quizplus · Accepted Answer

For the third quarter, the production is budgeted at 34,000 units. Each unit requires 3 pounds of direct material, so the total direct material needed is $34,000 \times 3 = 102,000$ pounds. The company wants to have an inventory equal to 30% of the next quarter's (Q4) material requirements at the end of Q3. Q4's production is budgeted at 48,000 units, requiring $48,000 \times 3 = 144,000$ pounds of direct material. Thus, the desired ending inventory for Q3 is $144,000 \times 30\% = 43,200$ pounds. To find the budgeted purchases for Q3, we add the desired ending inventory for Q3 to the material needed for Q3 production and subtract the beginning inventory (which is the desired ending inventory for Q2). The beginning inventory for Q3 is 30% of Q3's material requirements: $102,000 \times 30\% = 30,600$ pounds. Therefore, the budgeted purchases for Q3 are $102,000 + 43,200 - 30,600 = 114,600$ pounds.

The Jung Corporation's Production Budget Calls for the Following Number