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A company manufactures two products, X and Y, from the same direct material. An equal number of each product will be produced this period. Each unit of X requires 2 kg of material and each unit of Y requires 3 kg of material. The company always holds closing inventory of raw material sufficient for 40% of the next period’s production. The budgeted closing raw material inventory for the previous period is 900 kg.
What is the budgeted production of X for the current period?
The answer given was 450 units.I don’t understand… Why is it not 225 units? Isn’t 450 units the budgeted production for both X and Y?
The material for this period’s production will be 900/40% = 2,250 kg.
It takes 5kg to produce 1 unit of each of X and of Y, and therefore they have enough kgs to produce 2,250/5 – 450 units of X and 450 units of Y.
(Check it. To make 450 units of each will need (450 x 2) + (450 x 3) = 2,250 kgs).
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