Question

Prestwich Company has budgeted production for next year as

follows:
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:
A. 82,500 pounds
B. 165,000 pounds
C. 200,000 pounds
D. 205,000 pounds

Answer 1

To determine the budgeted purchases of material A for the second quarter, calculate the production needs for material A in the second quarter. According to the policy, the production needs for material A in the second quarter are 4 times the stock on hand at the beginning of the second quarter.

Step-by-step explanation:

To determine the budgeted purchases of material A for the second quarter, we need to calculate the production needs for material A in the second quarter.

According to the policy, the stock of material A at the end of each quarter should be equal to 25% of the next quarter's production needs. This means that the production needs for material A in the second quarter are 4 times the stock on hand at the beginning of the second quarter. So, the production needs for material A in the second quarter are 4 * 30,000 pounds = 120,000 pounds.

In order to maintain this production needs, the company needs to purchase material A. Therefore, the budgeted purchases of material A for the second quarter would be 120,000 pounds.