Tsao Company budgets on an annual basis. The following beginning and ending inventory levels (in units) are plannned for the year 20x1. Two units of raw material are required to produce each unit of finished product.

January 1 December 31
Raw material 35,000 45,000
Work in process 12,000 12,000
Finished goods 80,000 50,000

Required:

a. If Tsao Company plans to sell 480,000 units during the year, compute the number of units the firm would have to manufacture during the year.
b. If 500,000 finished units were to be manufactured by Bodin Company during the year, determine the amount of raw material to be purchased.

 a) production units = 450,000

b) Amount of raw materials = 1,010,000.

Explanation:

The production budget is computed as follows;

Production budget = Sales budget + closing inventory - opening inventory

Production budget= 480,000 + 50,000 - 80,000

                              = 450,000 units

The raw material purchase budget is the amount of material to be purchased to accommodate production need and inventory of materials to be kept.

Purchase budget = usage budget + closing inventory - opening inventoy

Purchase budget = (2× 500,000) + 45,000 - 35,000

                       =  1,010,000.

the interest will be $59.71

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