Planning Systems, Inc. has forecast the following unit sales and production for the next year, by quarter: 1^st 2^nd 3^rd 4^th
Production 150 160 140 100
Sales 120 140 150 120
The firm has beginning inventories as follows:
Finished goods 50 units
Direct material A 100
Direct material B 100
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?

Question

Quizplus · Accepted Answer

To find the ending inventory of material A for quarter 2, we need to calculate the total amount of material A required for production in quarter 2 and subtract the amount used from the beginning inventory.
Quarter 2 production = 160 units
Material A required per unit = 1 unit
Total material A required for production in quarter 2 = 160 units
Material A available for quarter 2 production = Beginning inventory + 20% of quarter 2 production needs = 50 + (20% * 160) = 50 + 32 = 82 units
Material A used for quarter 2 production = 140 units (given in the table)
Ending inventory of material A for quarter 2 = Material A available - Material A used = 82 - 140 = -58

Since the ending inventory cannot be negative, we know that there is not enough material A to meet production needs. We need to purchase additional material A to meet demand for the quarter. Therefore, the best choice(s) would be:

Answer: None/Not Possible
 Additional material A needs to be purchased to meet demand for quarter 2.