General Manufacturing expects to have 40,000 pounds of raw materials inventory on hand on June 30,the end of the current year.The company has budgeted the following production 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 20% of the next month's production needs.A finished unit requires two pounds of raw materials.
The budgeted purchases of materials during September should be:

Question

General Manufacturing expects to have 40,000 pounds of raw materials inventory on hand on June 30,the end of the current year.The company has budgeted the following production 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 20% of the next month's production needs.A finished unit requires two pounds of raw materials.
The budgeted purchases of materials during September should be:

Quizplus · Accepted Answer

First, we need to calculate the production needs for each month based on the budgeted production.

July: 10,000 units x 2 lbs per unit = 20,000 lbs
August: 14,000 units x 2 lbs per unit = 28,000 lbs
September: 16,000 units x 2 lbs per unit = 32,000 lbs
October: 12,000 units x 2 lbs per unit = 24,000 lbs

Next, we need to calculate the desired ending raw materials inventory for each month based on the production needs for the following month.

June 30: 40,000 lbs (given)
July 31: 20% x 28,000 lbs (August production needs) = 5,600 lbs + 28,000 lbs = 33,600 lbs
August 31: 20% x 32,000 lbs (September production needs) = 6,400 lbs + 32,000 lbs = 38,400 lbs
September 30: 20% x 24,000 lbs (October production needs) = 4,800 lbs + 24,000 lbs = 28,800 lbs

Now we can determine the total raw materials needed for the budgeting period:

40,000 lbs (June 30 inventory) + 20,000 lbs (July production needs) - 33,600 lbs (July desired ending inventory) + 28,000 lbs (August production needs) - 38,400 lbs (August desired ending inventory) + 32,000 lbs (September production needs) - 28,800 lbs (September desired ending inventory) + 24,000 lbs (October production needs) = 52,200 lbs

Finally, we can calculate the budgeted purchases of materials for September:

Desired ending inventory for September = 20% x 24,000 lbs (October production needs) = 4,800 lbs
Raw materials needed for September production = 16,000 units x 2 lbs per unit = 32,000 lbs
Total raw materials needed for September = 4,800 lbs + 32,000 lbs = 36,800 lbs
Raw materials inventory on hand at beginning of September = 33,600 lbs (desired ending inventory for August)
Budgeted purchases of materials for September = Total raw materials needed for September - Raw materials inventory on hand at beginning of September = 36,800 lbs - 33,600 lbs = 3,200 lbs

However, the answer choices are given in pounds, not in terms of the purchase order. Therefore, we need to add 3,200 lbs (the amount of the purchase order) to the June 30 inventory of 40,000 lbs, and then add the total needed amount of raw material of the following months. Summing all these gives the final answer:

40,000 lbs (June 30 inventory) + 3,200 lbs (September purchase) + 20,000 lbs (July production needs) + 28,000 lbs (August production needs) + 32,000 lbs (September production needs) + 24,000 lbs (October production needs) = 147,200 lbs

This amount incorporates the desired ending inventory amounts for each month as specified by the question.

General Manufacturing Expects to Have 40,000 Pounds of Raw Materials