Ajax Manufacturing produces a single product, which takes 8.0 pounds of direct materials per unit produced. Assume that it is currently at the end of the first quarter of the year, and there are 50,000 pounds of material on hand. The company’s policy is to maintain an end-of-quarter inventory of materials equal to 25 percent of the following quarter’s material requirements for production. How many units of product were produced in the first quarter of the year? Under the assumption that production will increase by 10 percent in the second quarter, what are the direct materials requirements (in pounds) for planned production in the second quarter?
Part 1:
| Closing balance DM inventory - Q1 | 50000 | pounds | 25% |
| Total DM inventory for Q1 | 50000 x(100/25) = 200,000 | pounds | 100% |
| DM inventory used per unit | 8 | pounds | |
| Number of units produced in Q1 | 200,000 / 8 = 25,000 | units |
Part 2:
| Expected units produced in Q2 | 25,00 x 110% = 27,500 | units |
| DM required for production | 27,500 x 8 pounds = 220,000 | pounds |
| Add: 25% closing balance requirement | 220,000 x 25% = 55,000 | pounds |
| Total DM requirements for Q2 | 220,000 + 55,000 = 275,000 | pounds |