Ritz Company expects to sell 24,000 units of finished goods over the next 6-month period. The company has 10,000 units on hand and its managers want to have 14,000 units on hand at the end of the period. To produce one unit of finished product, two units of direct materials are needed. Ritz has 100,000 units of direct material on hand and has budgeted for an ending inventory of 110,000 units.
What is the amount of direct material to be purchased (in units)?

Question

Quizplus · Accepted Answer

To produce 24,000 units, Ritz needs:
24,000 units expected to be sold + 14,000 units desired ending inventory - 10,000 units beginning inventory = 28,000 units to be produced
Since Ritz needs two units of direct materials to produce one unit of finished product, it needs:
28,000 units to be produced x 2 units of direct material per unit = 56,000 units of direct material needed
Since Ritz already has 100,000 units of direct material on hand and budgeted for an ending inventory of 110,000 units, the amount of direct material to be purchased is:
110,000 units budgeted ending inventory - 100,000 units already on hand + 56,000 units needed = 66,000 units to be purchased. Therefore, the answer is C.

Ritz Company Expects to Sell 24,000 Units of Finished Goods