The following are budgeted data: Two pounds of material are required for each finished unit. The inventory of materials at the end of each month should equal 20% of the following month's production needs. Purchases of raw materials for May should be:
A)39,200 pounds
B)52,000 pounds
C)36,800 pounds
D)38,000 pounds

Question

The following are budgeted data:  Two pounds of material are required for each finished unit. The inventory of materials at the end of each month should equal 20% of the following month's production needs. Purchases of raw materials for May should be:
A)39,200 pounds 
B)52,000 pounds 
C)36,800 pounds 
D)38,000 pounds

Quizplus · Accepted Answer

The production needs for June can be calculated as follows: 
June production needs = 4,000 finished units x 2 pounds/unit = 8,000 pounds 
To meet the inventory requirement, the ending inventory for May should be 20% of June production needs: 
Ending inventory for May = 20% x 8,000 pounds = 1,600 pounds 
Therefore, the total material needed for May is: 
May production needs + Ending inventory for May - Beginning inventory for May
= (4,500 finished units x 2 pounds/unit) + 1,600 pounds - (20% x 8,000 pounds)
= 9,000 pounds + 1,600 pounds - 1,600 pounds
= 9,000 pounds 
Since there are already 3,200 pounds of materials in beginning inventory for May, the required purchases for May are: 
9,000 pounds - 3,200 pounds = 5,800 pounds 
Thus, the purchases of raw materials for May should be 5,800 pounds. However, none of the answer choices match this amount. The closest option is C, which is 36,800 pounds.

The Following Are Budgeted Data: Two Pounds of Material