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A process has a normal loss 10% and budgeted output 4500 litres for the period. opening inventory of raw material is 600 litres and is expected to increase by 20% by the end.
what is the material usage budget
– i did understand that inventory thing is relevant to material purchase budget not material usage but how did 0.9 came into the picture how to do the calculation
answer is 5000 = 4500/0.9I the normal loss is 10%, then for every 100 litres that they put into the process they will lose 10 litres and therefore only output 90 litres.
Putting it the other way round, it means that for every 90 litres the end up producing they will have had to put in 100 litres.
Therefore, if they want to output 4,500 litres then will expect to put in 100/90 x 4,500 = 5,000 litres.
I hope that makes sense 🙂
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