The Tobler Company has budgeted production for next year as follows: $10,00012,00016,00014,000\begin{array} { | c | l | l | l | l | } \hline \text { Quarter } & \text { First } & \text { Second } & \text { Third } & \text { Fourth } \\\hline \text { Production in units } & 10,000 & 12,000 & 16,000 & 14,000 \\\hline\end{array}$ Four kilograms of raw materials are required for each unit produced. Raw materials on hand at the start of the year total 4,000 kilograms. The raw materials inventory at the end of each quarter should equal 10% of the next quarter's production needs. Budgeted purchases of raw materials in kilograms in the third quarter will be?

A) 56,800.
B) 62,400.
C) 63,200.
D) 50,400.

Question

The Tobler Company has budgeted production for next year as follows:

10,00012,00016,00014,000\begin{array} { | c | l | l | l | l | } \hline \text { Quarter } & \text { First } & \text { Second } & \text { Third } & \text { Fourth } \\\hline \text { Production in units } & 10,000 & 12,000 & 16,000 & 14,000 \\\hline\end{array}

Four kilograms of raw materials are required for each unit produced. Raw materials on hand at the start of the year total 4,000 kilograms. The raw materials inventory at the end of each quarter should equal 10% of the next quarter's production needs. Budgeted purchases of raw materials in kilograms in the third quarter will be?

A) 56,800.
B) 62,400.
C) 63,200.
D) 50,400.

Michael Machado · Accepted Answer

Final Answer : C, Explanation :   For the third quarter, the production requirement is 16,000 units. Each unit requires 4 kilograms of raw materials, so the total raw materials needed for production is   16 , 000 × 4 = 64 , 000 16,000 	imes 4 = 64,000 16 , 000 × 4 = 64 , 000   kilograms. The desired ending inventory for the third quarter is 10% of the next quarter's (fourth quarter) production needs, which is   14 , 000 × 4 = 56 , 000 14,000 	imes 4 = 56,000 14 , 000 × 4 = 56 , 000   kilograms of raw materials needed for the fourth quarter production. 10% of this is   56 , 000 × 0.10 = 5 , 600 56,000 	imes 0.10 = 5,600 56 , 000 × 0.10 = 5 , 600   kilograms. Therefore, the total raw materials needed for the third quarter is the sum of the production needs and the desired ending inventory, which is   64 , 000 + 5 , 600 = 69 , 600 64,000 + 5,600 = 69,600 64 , 000 + 5 , 600 = 69 , 600   kilograms. The beginning inventory for the third quarter is 10% of the third quarter's production needs, which is   16 , 000 × 4 = 64 , 000 16,000 	imes 4 = 64,000 16 , 000 × 4 = 64 , 000   kilograms, and 10% of this is   64 , 000 × 0.10 = 6 , 400 64,000 	imes 0.10 = 6,400 64 , 000 × 0.10 = 6 , 400   kilograms. Thus, the budgeted purchases of raw materials for the third quarter is the total needed minus the beginning inventory, which is   69 , 600 − 6 , 400 = 63 , 200 69,600 - 6,400 = 63,200 69 , 600 − 6 , 400 = 63 , 200   kilograms.

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