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I need help understanding how they got to the answer to the question below. the answer I get is $80520, the correct answer is $81200.
The following information has been extracted from the budget of a manufacturing company:
Product X
Budgeted Sales 4200 units
Opening Inventory 500 units
Closing Inventory 800 units
Material M
Opening Inventory 1200kg
Closing Inventory 1500kg
Price $4 per kg
Product X uses 4kg per unit of Material M but 10% of input is expected to be Normal Loss.What is the Material Purchases Budget (in $s) for Material M?
Hi there, thanks for your question & Im guessing that your problem is likely caused by the grossing up for normal loss… however full workings below…
Ok so
Product X budget… need to have available to sell 4200 units (less o/s of 500 + c/s of 800) so production required is 4500 units of XThis is 4kg of material M but first need to gross this up for 10% loss. so we take
4 / 0.9 = 4.44kg of material M per unit of product X
For material M we will need 4500 units * 4.44kg = 20,000kg of material M
To find the required material M we need 20,000 required ( less O/S of 1200 + c/s of 1500kg) to find the required material M is 20,300kg.
We then take 20,300kg * $4 per kg = $81,200..
Hope this explains ok
Cath
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