budget raw material purchases

This topic has 3 replies, 2 voices, and was last updated 11 years ago by John Moffat.

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August 2, 2014 at 6:03 am #180463
superwomen
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Hi Sir,

Need you to help!!!

Budgeted production for 3 mths of next year is as follow:
month 1 : 8000 unit
month 2 : 9000 unit
month 3 : 7000 unit

each unit 4kg of raw material costing $5/kg. Budgeted raw material inventory at the each mths is to be 20% of the following month’s production. What are the budgeted raw material purchases for month 2 of next year?

Thanks 🙂
August 2, 2014 at 7:33 am #180467
John Moffat
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Opening inventory for month 2 = 20% x 9000 x 4kg = 7200 kg
Closing inventory for month 2 = 20% x 7000 x 4kg = 5600 kg
Production in month 2 needs 9000 x 4kg = 26,000 kg

So purchases in month 2 = 26000 – 7200 + 5600 = 24400 kg
(or 24400 x $5 = $122,000)
August 2, 2014 at 8:38 am #180478
superwomen
Participant
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Dear Sir,

But this answer is $172,000. please advise.

Thanks
August 2, 2014 at 10:58 am #180495
John Moffat
Keymaster
- Topics: 57
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Sorry – if you check my workings you will see that I have made a silly arithmetic mistake.

In the third line, production in month 2 needs 9000 x 4kg = 36,000 (I wrote 26,000 by mistake).

Follow that through and you will that it does come to $172,000
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