Marst Corporations budgeted production in units and budgeted

Marst Corporation\'s budgeted production in units and budgeted raw materials purchases over the next three months are given below:

Two pounds of raw materials are required to produce one unit of product. The company wants raw materials on hand at the end of each month equal to 30% of the following month\'s production needs. The company is expected to have 23,000 pounds of raw materials on hand on January 1. Budgeted production for February should be:

rev: 10_27_2016_QC_CS-67319

250,600 units

96,000 units

48,000 units

179,000 units

	January	February	March
Budgeted production (in units)	118,000	?	80,000
Budgeted raw materials purchases (in pounds)	272,600	298,600	354,600

Solution

Solution: Answer is 4th option 179,000 units Working Notes: Let X be the Budgeted production units. So, Beginning raw material Inventory = February budgeted production units x 2 x 30% = X x 2 x 30% =0.6 X Ending Raw material inventory = March budgeted production units x 2 x 30% =80,000 x 2 x 30% =48,000 February production required raw material = Budgeted production units. x 2 = 2X Budgeted raw materials purchases for February = Ending Raw material inventory + February production required raw material - Beginning raw material Inventory 298,600 = 48,000 + 2X - 0.6 X 298,600 = 48,000 + 1.4X X=(298,600 - 48,000)/1.4 X=250,600/1.4 X=179,000 units Please feel free to ask if anything about above solution in comment section of the question.