Question

Marst Corporation's budgeted production in units and budgeted raw materials purchases over the next three months are given below: February Budgeted production (In units) Budgeted raw materials purchases (In pounds) January 122,000 282,400 March 80,000 364,400 308,400 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 21,000 pounds of raw materials on hand on January 1. Budgeted production for February should be: 186,000 units 48,000 units 0 260,400 units O 96,000 units

Answer 1

Closing stock of RM on 31st Jan is as follows,

Particulars	RM (in Pounds)	Remarks
Opening (a)	21,000	Given
Purchase (b)	2,82,400	Given
Usage (c)	2,44,000	(1,22,000*2)
Closing	59,400	(a+b-c)

Now the opening stock of Feb would be 59,400 Pounds of RM and purchases is about 3,08,400 pounds of RM.

Total quantity of RM available for Feb month production of 3,67,800 Pounds.

If we produce 1,86,000 units in Feb then the requirement of RM would be 3,72,000 (1,86,000*2) pounds of RM. In the given case only 3,67,800 pounds of RM is available hence, both option a and d is incorrect.

Now if we look at the requirement of RM for the month of March it requires a minimum of 1,60,000 (80,000*2) pounds of RM.

So the minimum closing balance of RM should be 48,000 (1,60,000*30%) pounds. This minimum RM closing can be maintained whether we produce 48,000 units or 96,000 units in February which is demonstrated below,

If 96,000 units budgeted,

Particulars	RM (in Pounds)	Remarks
Opening (a)	59,400	Closing of Jan
Purchase (b)	3,08,400	Given
Usage (c)	1,92,000	96000*2
Closing	1,75,800

If 48,000 units budgeted,

Particulars	RM (in Pounds)	Remarks
Opening (a)	59,400	Closing of Jan
Purchase (b)	3,08,400	Given
Usage (c)	96,000	48000*2
Closing	2,71,800

Hence based on the details available it can be concluded that 96,000 units can be budgeted.