Question

Sarafiny Corporation is in the process of preparing its annual budget. The following beginning and ending inventory levels are planned for the year:

Beginning Inventory Ending Inventory
Finished goods (units) 27,000 77,000
Raw material (grams) 57,000 47,000

Each unit of finished goods requires 3 grams of raw material. If the company plans to sell 140,000 units during the year, how much of the raw material should the company purchase during the year?

Answer 1

Answer:

560,000

Explanation:

The computation of the raw material purchased during the year is as follows:

Before that following calculations need to be done

Change in inventory = Ending Inventory - Begining Inventory

= 77,000 - 27,000

= 50,000

Now  total units produced is

= Units sold + Increase in Inventory

= 140,000 + 50,000

= 190,000

To produce 190,000 units of finished goods the raw material needed is

= 3 grams ×  190,000

= 570,000 grams  

Now

Change in raw material = Ending raw material - Begining raw material

= 47,000 - 57,000

= -10,000

So,

Purchase of raw material = Raw material requirement - Decrease in raw material

= 570,000 - 10,000

= 560,000