Question

Purchases to be made in gallons: 124,000

Production Budget
Budgeted Sales in Units: 42,000
Add Target Ending Finished-Goods Inventory: 15,000
Total Required Units = 57,000
Deduct Beginning Finished-Goods Inventory (13,000)
Total Units of Finished Goods to be Produced = 44,000

To be used in production: 132,000 (44,000 from above * 3 gallons)
Add target ending inventory: 53,000
Total Requirements = 185,000
Deduct beginning inventory: (61,000)
Purchases to be made (in gallons) = 124,000

Answer 1

The purchases to be made in gallons are 124,000. The total requirements for production, including ending inventory and deducting beginning inventory, amount to 185,000 gallons. Subtracting the purchases already made (124,000 gallons) gives the final answer of 124,000 gallons.

Step-by-step explanation:

The calculation for the purchases to be made in gallons involves determining the total requirements for production and adjusting for beginning and ending inventories. The process begins with the production budget, where the total units of finished goods to be produced are calculated by adding the budgeted sales, target ending finished-goods inventory, and subtracting the beginning finished-goods inventory.

This gives us 44,000 units. Each unit requires 3 gallons, resulting in a total of 132,000 gallons (44,000 units * 3 gallons). Adding the target ending inventory of 53,000 gallons and deducting the beginning inventory of 61,000 gallons gives the total requirements of 185,000 gallons. Finally, by subtracting the purchases already made (124,000 gallons), the remaining purchases to be made in gallons is 124,000.

In summary, the purchases to be made in gallons are 124,000. This calculation ensures that the production budget is aligned with the required units and inventories, providing an accurate estimate of the gallons needed for production. This comprehensive approach ensures that the company maintains an appropriate inventory level to meet both current and future demands.