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Hi, can you help me with this question from the mock exam please?
A company manufactures a single product. Budgeted production for the next year is as follows:
month 1 – 8000 units
month 2 – 9000 units
month 3 – 7000 unitsEach unit uses 4kg of raw materials costs $5 per kg. The budgeted raw material inventory at the end of each month is to be 20% of the following months production.
What are the budgeted raw material purchases for month 2 of next year in $’s?
Inventory at the end of month 1 / start of month 2 = 20% x 9,000 x 4kg = 7,200 kg
Inventory at the end of month 2 = 20% x 7,000 x 4kg = 5,600 kg
The material needed for production in month 2 = 9,000 x 4kg = 36,000 kg
Therefore the purchases in month 2 will be 36,000 – 7,200 + 5,600 = 34,400 kg
At $5 per kg, the budgeted purchases will be $172,000
(the free lectures on budgeting will help you)
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