Planning Systems, Inc. has forecast the following unit sales and production for the next year, by quarter: $$\begin{array}{l}
\begin{array} { l l l l l }
& 1 ^ { \text {st } } & 2 ^ { \text {nd } } & 3 ^ { \text {rd } } & 4 ^ { \text {th } } \
\text { Production } & 150 & 160 & 140 & 100 \
\text { Sales } & 120 & 140 & 150 & 120
\end{array}\
\text { The firm has beginning inventories as follows: }\
\begin{array} { l l }
\text { Finished goods } & 50 \text { units } \
\text { Direct material A } & 100 \
\text { Direct material B } & 100
\end{array}
\end{array}$$ A finished unit requires one unit of material A and two units of material B. There should be enough material on hand at the end of each quarter to meet 20% of the next quarter's production needs. There are no work-in-process inventories.
What is the ending inventory for material A for quarter 2?
A) 24
B) 28
C) 30
D) 100

Question

Planning Systems, Inc. has forecast the following unit sales and production for the next year, by quarter: $$\begin{array}{l}
\begin{array} { l l l l l } 
& 1 ^ { \text {st } } & 2 ^ { \text {nd } } & 3 ^ { \text {rd } } & 4 ^ { \text {th } } \
\text { Production } & 150 & 160 & 140 & 100 \
\text { Sales } & 120 & 140 & 150 & 120
\end{array}\
\text { The firm has beginning inventories as follows: }\
\begin{array} { l l } 
\text { Finished goods } & 50 \text { units } \
\text { Direct material A } & 100 \
\text { Direct material B } & 100
\end{array}
\end{array}$$ A finished unit requires one unit of material A and two units of material B. There should be enough material on hand at the end of each quarter to meet 20% of the next quarter's production needs. There are no work-in-process inventories.
What is the ending inventory for material A for quarter 2?
A) 24
B) 28
C) 30
D) 100

Quizplus · Accepted Answer

Material A required for production in Q2 is 160 units (1 unit of material A per finished unit). To meet 20% of Q3's production needs (140 units), an additional 28 units (20% of 140) are needed. Thus, the total requirement for Q2 is 160 (for production) + 28 (for Q3's beginning inventory) = 188 units. Starting with 100 units, after using 160 for production, 40 units remain. Adding the 28 units for Q3's beginning inventory, the ending inventory for material A in Q2 is 40 - 28 = 12 units. However, this calculation seems incorrect based on the options provided, indicating a misunderstanding in the explanation process. The correct approach should calculate the ending inventory based on production and required beginning inventory for the next quarter without subtracting from the remaining units. The correct calculation involves ensuring enough material A for Q3's beginning inventory requirements, which would be directly related to the production needs and the policy for maintaining beginning inventory, not subtracting from the post-production remaining units.

Planning Systems, Inc A Finished Unit Requires One Unit of Material a and Production