Doanne Food Processing expects to have 36,000 pounds of raw materials inventory on hand on March 31,the end of the current year.The company budgets the following production (in units)for the first four months of the coming year:
For the budgeting period,the firm desires each month's ending raw material inventory to be 10% of the next month's production needs.A finished unit requires three pounds of raw materials.
Budgeted purchases for raw materials during April should be:

Question

Doanne Food Processing expects to have 36,000 pounds of raw materials inventory on hand on March 31,the end of the current year.The company budgets the following production (in units)for the first four months of the coming year: 
For the budgeting period,the firm desires each month's ending raw material inventory to be 10% of the next month's production needs.A finished unit requires three pounds of raw materials.
Budgeted purchases for raw materials during April should be:

Quizplus · Accepted Answer

Step 1: Calculate the total production needs for the four months.

Month 1: 20,000 units × 3 lbs/unit = 60,000 lbs
Month 2: 18,000 units × 3 lbs/unit = 54,000 lbs
Month 3: 25,000 units × 3 lbs/unit = 75,000 lbs
Month 4: 22,000 units × 3 lbs/unit = 66,000 lbs

Total production needs = 60,000 + 54,000 + 75,000 + 66,000 = 255,000 lbs

Step 2: Calculate the desired ending inventory for each month.

Month 1: 10% of 18,000 units × 3 lbs/unit = 5,400 lbs
Month 2: 10% of 25,000 units × 3 lbs/unit = 7,500 lbs
Month 3: 10% of 22,000 units × 3 lbs/unit = 6,600 lbs
Month 4: 10% of 0 units (no production in month 5) = 0 lbs

Step 3: Calculate the total raw materials needed.

Total raw materials needed = Total production needs + Total desired ending inventory - Raw materials on hand
= 255,000 + 5,400 + 7,500 + 6,600 - 36,000
= 238,500 lbs

Step 4: Calculate the budgeted purchases for April.

Budgeted purchases for April = Raw materials needed for April - Raw materials on hand at the end of March
= (60,000 + 5,400) - 36,000
= 29,400 lbs

Since the company requires three pounds of raw materials for each finished unit produced, the budgeted purchases for April should be 29,400 ÷ 3 = 9,800 units.

Therefore, the best choice is C) 363,000.

Doanne Food Processing Expects to Have 36,000 Pounds of Raw