The Molson 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 second quarter would be:

Question

The Molson 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 second quarter would be:

Quizplus · Accepted Answer

The production for the second quarter is 12,000 units, requiring 48,000 lbs of materials. The ending inventory for the second quarter should be 10% of the third quarter's needs, which is 1,600 units (16,000 units * 4 lbs/unit * 10%). The beginning inventory for the second quarter is the ending inventory of the first quarter, which is 4,800 lbs (12,000 units * 4 lbs/unit * 10%). Therefore, purchases for the second quarter are 48,000 lbs + 1,600 lbs - 4,800 lbs = 49,600 lbs.

The Molson Company Had Budgeted Production for the Year as Follows