Material purchases budget
A material purchases budget calculates the quantities to buy after considering planned usage and desired raw-material inventory. Purchases = usage + desired closing raw materials − opening raw materials. Apply the relevant purchase prices to find planned cost and then use credit and payment terms for the cash budget. A quantity balance should be completed before monetary values, particularly where opening material has a different historical cost.
Worked example
Usage is 8,000 kg, desired closing inventory 1,500 kg and opening inventory 1,000 kg. Purchases are 8,500 kg; at $4 per kg planned purchase cost is $34,000.
Common mistake
Do not equate material purchases with usage or cash payments when inventory levels and supplier credit change.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | MA | Direct | September 2026–June 2027 |
| FIA | FMA | Direct | September 2026–June 2027 |