Accounting: What the Numbers Mean 11th Edition by Wayne McManus,Daniel Viele,David Marshall

Exercise 9

Purchases budget Each gallon of Old Guard, a popular aftershave lotion, requires 2 ounces of ocean scent. Budgeted production of Old Guard for the first three quarters of 2016 is as follows:

Management's policy is to have on hand at the end of every quarter enough ocean scent inventory to meet 25% of the next quarter's production needs. At the beginning of Quarter I, 5,000 ounces of ocean scent were on hand.
Required:
a. Calculate the number of ounces of ocean scent to be purchased in each of the first two quarters of 2016.
b. Explain why management plans for an ending inventory instead of planning to purchase each quarter the amount of raw materials needed for that quarter's production.