Question

Pablo Company has budgeted production for next year as follows: Quarter First Second Third Fourth Production in units 60,000 80,000 90,000 70,000 Two pounds of material A are required for each unit produced. The company has a policy of maintaining a stock of material A on hand at the end of each quarter equal to 25% of the next quarter's production needs for material A. A total of 30,000 pounds of material A are on hand to start the year. Budgeted purchases of material A for the second quarter would be:

Answer 1

Answer:

The budgeted purchases of material A for the second quarter would be: 165,000 pounds of material A

Explanation:

Solution

Given that:

The Opening inventory of material A = 30000 pounds

Then

Direct Materials Budget is given as follows:

                                          Quarter 1 Quarter 3 Quarter 2

Units to be produced     60000            80000           90000

Multiply by Quantity of          2                   2                       2

Direct material needed per unit

Materials needed for Production (pounds):

                                             120000        160000          180000

Plus:

Desired Ending inventory

of direct materials                40000            45000

Total Materials Requirement (pounds)    

                                                                     205000

Less: Beginning inventory for direct materials:

                                                                       40000

Materials to be purchased (Pounds)            165000

Therefore, the budgeted purchases of material A for the second quarter would be: 165,000 pounds of material A

Answer 2

Answer:

Budgeted purchases for second quarter is 165000 pounds

Explanation:

The per unit requirement of material A is 2 pounds.

We first need to calculate the closing inventory of Material A at the end of first quarter and at the end of second quarter.

End of first quarter

The closing inventory for First quarter should be enough to meet 25% production requirement for next quarter. 25% production requirement for second quarter is 40000 pounds.

Production requirement - Second quarter = 80000 * 2 = 160000

25% of 160000 = 40000 pounds

End of second quarter

The closing inventory for First quarter should be enough to meet 25% production requirement for next quarter. 25% production requirement for second quarter is 45000 pounds.

Production requirement - Second quarter = 90000 * 2 = 180000

25% of 180000 = 45000 pounds

Budgeted Purchase -Second quarter = Closing Inventory in pounds + production in pounds - Opening Inventory in pounds

Purchase requirement - First quarter = 45000 + 160000 - 40000 = 165000 pounds