Stillwater Corporation manufactures outdoor planters.Budgeted sales and production data for the planters are as follows:

The ending inventory for each month should be equal to 20% of the next month's production needs.Each planter requires one pound of clay in its manufacture.Stillwater Corporation has a policy that the inventory of clay at the end of each month needs to be equal to 20% of the production needs for the following month.At the beginning of January,480 pounds of clay were in inventory.How many pounds of clay would Stillwater Corporation need to purchase in Month 2?

Question

Stillwater Corporation manufactures outdoor planters.Budgeted sales and production data for the planters are as follows:

The ending inventory for each month should be equal to 20% of the next month's production needs.Each planter requires one pound of clay in its manufacture.Stillwater Corporation has a policy that the inventory of clay at the end of each month needs to be equal to 20% of the production needs for the following month.At the beginning of January,480 pounds of clay were in inventory.How many pounds of clay would Stillwater Corporation need to purchase in Month 2?

Quizplus · Accepted Answer

To determine the amount of clay needed in Month 2, we need to calculate the total production needs for Month 2 and subtract the inventory of clay we have at the end of Month 1.

Total production needs for Month 2 = Budgeted sales for Month 2 + Desired ending inventory for Month 2
= 6,000 + (0.20 x 9,000) = 7,800 pounds

To determine the amount of clay needed in Month 2, we need to subtract the inventory of clay we have at the end of Month 1 from the total production needs for Month 2.

Clay needed in Month 2 = Total production needs for Month 2 - Clay inventory at the end of Month 1
= 7,800 - 960 (20% of 4,800) = 6,840 pounds

Therefore, Stillwater Corporation would need to purchase 6,840 pounds of clay in Month 2.

The correct answer is (C) 2,860.

Stillwater Corporation Manufactures Outdoor Planters