Tsao Company budgets on an annual basis. The following beginning and ending inventory levels (in units) are planned for the year 20×1. Three units of raw material are required to produce each unit of finished product. Required: A. If Tsao Company plans to sell 380,000 units during the year, compute the number of units the firm would have to manufacture during the year. B. If 400,000 finished units were to be manufactured by Tsao Company during the year, determine the amount of raw material to be purchased. ?January 1December 31Raw material 70,000 90,000 Work in process12,000 12,000 Finished goods70,000 40,000
What will be an ideal response?
| A. | Production (in units) required for the year: |
| Sales for the year | 380,000 |
| Add: Desired ending finished-goods inventory on December 31 | 40,000 |
| Deduct: Beginning finished-goods inventory on January 1 | 70,000 |
| Required production during the year | 350,000 |
| B. | Purchases of raw material (in units), assuming production of 400,000 finished units: |
| Raw material required for production (400,000 × 3) | 1,200,000 |
| Add: Desired ending inventory on December 31 | 90,000 |
| Deduct: Beginning inventory on January 1 | 70,000 |
| Required raw-material purchases during the year | 1,220,000 |
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