The Tori Company had budgeted production for the year as follows:
$\begin{array}{|l|c|c|c|c|}
\hline \text { Quarter } & \mathbf{1} & \mathbf{2} & \mathbf{3} & \mathbf{4} \
\hline \text { Production in units } & 10,000 & 12,000 & 16,000 & 14,000 \
\hline
\end{array}$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 third quarter would be (in lbs. ):

Question

The Tori Company had budgeted production for the year as follows: 
$\begin{array}{|l|c|c|c|c|}
\hline \text { Quarter } & \mathbf{1} & \mathbf{2} & \mathbf{3} & \mathbf{4} \
\hline \text { Production in units } & 10,000 & 12,000 & 16,000 & 14,000 \
\hline
\end{array}$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 third quarter would be (in lbs. ):

Quizplus · Accepted Answer

The correct answer is A.The Tori Company needs to have 10% of the next quarter's production needs in materials as ending inventory for each quarter. So, the ending inventory for the second quarter should be 10% of the third quarter's production needs, which is 16,000 units * 4 lbs./unit * 10% = 6,400 lbs. The beginning inventory for the third quarter is 4,000 lbs. So, the budgeted purchases for the third quarter would be 6,400 lbs. + 56,000 lbs. (14,000 units * 4 lbs./unit) - 4,000 lbs. = 62,400 lbs.

The Tori Company Had Budgeted Production for the Year as Follows