The Tori Company had budgeted production for the year as follows:
$$\begin{array} { | l | c | c | c | c | }
\hline \text { Quarter } & 1 & 2 & 3 & 4 \
\hline \text { Production in units } & 10,000 & 12,000 & 16,000 & 14,000 \
\hline
\end{array}$$
Four pounds of raw materials are required for each unit produced. Raw materials on hand at the start of the year total 4,000 lbs. The raw materials inventory at the end of each quarter should equal 10% of the next quarter's production needs in materials. Budgeted purchases of raw materials in the third quarter would be:

Question

The Tori Company had budgeted production for the year as follows:
$$\begin{array} { | l | c | c | c | c | } 
\hline \text { Quarter } & 1 & 2 & 3 & 4 \
\hline \text { Production in units } & 10,000 & 12,000 & 16,000 & 14,000 \
\hline
\end{array}$$
Four pounds of raw materials are required for each unit produced. Raw materials on hand at the start of the year total 4,000 lbs. The raw materials inventory at the end of each quarter should equal 10% of the next quarter's production needs in materials. Budgeted purchases of raw materials in the third quarter would be:

Quizplus · Accepted Answer

The correct answer is A.The Tori Company needs to have 10% of the next quarter's production needs in materials on hand at the end of each quarter. So, at the end of the second quarter, the company needs to have 10% of the third quarter's production needs in materials on hand, which is 10% of 16,000 lbs., or 1,600 lbs. The company has 4,000 lbs. of raw materials on hand at the start of the year, and it will produce 12,000 units in the second quarter, which will require 48,000 lbs. of raw materials. So, the company will need to purchase 48,000 lbs. - 4,000 lbs. - 1,600 lbs. = 42,400 lbs. of raw materials in the second quarter.In the third quarter, the company will produce 16,000 units, which will require 64,000 lbs. of raw materials. The company has 1,600 lbs. of raw materials on hand at the end of the second quarter, and it will need to have 10% of the fourth quarter's production needs in materials on hand at the end of the third quarter, which is 10% of 14,000 lbs., or 1,400 lbs. So, the company will need to purchase 64,000 lbs. - 1,600 lbs. - 1,400 lbs. = 61,000 lbs. of raw materials in the third quarter.Therefore, the budgeted purchases of raw materials in the third quarter would be 61,000 lbs.

The Tori Company Had Budgeted Production for the Year as Follows