Master Budget Analysis for Morganton Company

How many pounds of raw materials should be purchased in July to fulfill production needs in August and maintain inventory for September?

To fulfill production in August and maintain inventory for September, Morganton Company should purchase 85,000 pounds of raw materials in July.

Explanation:

To calculate how many pounds of raw materials should be purchased in July, we need to first determine the total raw material needs for August production and then any carryover needed for September production. According to the data provided by Morganton Company, one finished goods unit requires 5 pounds of raw materials, hence, to meet the production of 14,000 units in August, it would require 71,000 pounds of raw materials (14,000 units * 5 pounds/unit). Next, we account for the finished goods that need to remain in inventory by the end of July for August's production. As the ending finished goods inventory equals 20% of the following month's unit sales, we calculate 20% of 14,000 units which is 2,800 units for August. These 2,800 units will require 14,000 pounds of raw materials (2,800 units * 5 pounds/unit). Therefore, total raw materials required in July = require for August production + remaining inventory for August = 71,000 pounds + 14,000 pounds = 85,000 pounds.