Prestwich Company has budgeted production for next year as follows: First Second Third Fourth Quarter Quarter Quarter Quarter Production in Units 60,000 80,000 90,000 70,000 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:

The Budgeted purchases of material A for the second quarter would be: 165,000 pounds.        

Prestwich Company has budgeted production

                                                First Quarter        Second Quarter

Opening                                          30,000                 40,000

[(80,000×2)×25/100=40,000]

Required for current production   120,000                160,000

(60,000×2)  (80,000×2)

Required Closing Balance               32,000                 45,000

[(80,000×2)×25/100]      [(90,000×2)×25/100]

Need to be purchased                     122,000                 165,000

(120,000+32,000-30,000)    (160,000+45,000-40,000)

Inconclusion the Budgeted purchases of material A for the second quarter would be: 165,000 pounds.        

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165,000 pounds

Explanation:

The computation of Budgeted purchases of material A for the second quarter is shown below:-

But before that first we need to calculate the raw material production required and total raw material required so that the budgeted purchase could come

Raw materials for production required = Units of required production × Per units of raw material required

= 80,000 × 2

= 160,000

Total raw material required = Desired raw material ending inventory + Raw materials for production required

= (90,000 × 2 pounds per unit × 25%) + 160,000

= 45,000 + 160,000

= 205,000

Budgeted purchases of material A for the second quarter = Total raw material required - Inventory of raw material in beginning

= 205,000 - (80,000 × 2 pounds per unit × 25%)

= 205,000 - 40,000

= 165,000 pounds

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