Asked by Angie Castro on May 18, 2024
Verified
Sarafiny Corporation is in the process of preparing its annual budget. The following beginning and ending inventory levels are planned for the year.
Each unit of finished goods requires 7 grams of raw material. The company plans to sell 270,000 units during the year.How much of the raw material should the company purchase during the year?
A) 1,960,000 grams
B) 1,950,000 grams
C) 1,970,000 grams
D) 2,000,000 grams
Beginning Inventory
The value of goods available for sale or use at the start of an accounting period before any purchases or production are added.
Ending Inventory
The total value or quantity of goods, materials, or products in stock at the end of an accounting period.
- Formulate expected financial results, especially cost of goods sold, direct labor expenses, and buying demands.
- Develop skills in financial forecasting and planning within a business context.
Verified Answer
KF
Karl Felicidario Tabios
May 24, 2024
Final Answer :
B
Explanation :
First, we need to calculate the total raw material required based on the planned production and the raw material required per unit:
270,000 units x 7 grams per unit = 1,890,000 grams
However, we also need to take into account the changes in inventory levels:
Beginning inventory = 170,000 grams
Ending inventory = 200,000 grams
So the total amount of raw materials needed for production is:
1,890,000 grams + 30,000 grams (200,000 ending inventory - 170,000 beginning inventory) = 1,920,000 grams
Therefore, the company should purchase 1,920,000 grams of raw material during the year. However, this value is not one of the answer choices. The closest option is B, which is 1,950,000 grams. This value is higher than what the company actually needs, but it provides a buffer in case there are any unexpected changes in production or inventory levels.
270,000 units x 7 grams per unit = 1,890,000 grams
However, we also need to take into account the changes in inventory levels:
Beginning inventory = 170,000 grams
Ending inventory = 200,000 grams
So the total amount of raw materials needed for production is:
1,890,000 grams + 30,000 grams (200,000 ending inventory - 170,000 beginning inventory) = 1,920,000 grams
Therefore, the company should purchase 1,920,000 grams of raw material during the year. However, this value is not one of the answer choices. The closest option is B, which is 1,950,000 grams. This value is higher than what the company actually needs, but it provides a buffer in case there are any unexpected changes in production or inventory levels.
Learning Objectives
- Formulate expected financial results, especially cost of goods sold, direct labor expenses, and buying demands.
- Develop skills in financial forecasting and planning within a business context.
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