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Budgeting

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Budgeting

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by John Moffat.
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  • Author
    Posts
  • December 14, 2021 at 8:11 am #644218
    dingdong02
    Participant
    • Topics: 14
    • Replies: 1
    • ☆

    A company anticipates that 10000 units of product z will be sold during January. Each unit of Z requires 2 litres of raw material w. Actual stocks as of 1 January and budgeted inventories as of 31 January are as follows.
    1 January 31 January
    Product z (units) 14000 12000
    Raw material w (litres) 20000 15000
    1 litre of w costs $4
    If the company pays for all purchases in the month of acquisition, what is the cash outlay for January purchases of w?
    ans) 44000 ( I don’t get this what’s that mean each unit of z requires 2 litres of raw material w)

    December 14, 2021 at 3:37 pm #644243
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51543
    • ☆☆☆☆☆

    Suppose that the product is butter. Butter needs milk to make it (so milk is the raw material being used), so maybe for 1 unit (i.e. 1 pack) of butter needs 2 litres of milk.

    In this question, given that they expect to sell 10,000 units they need to produce 10,000 + 12,000 – 14,000 = 8,000 units.

    That means that they need 8,000 x 2 = 16,000 litres of the raw material.

    Because of the inventories they therefore need to buy 16,000 + 15,000 – 20,000 = 11,000 litres.

    Therefore they will need to spend 11,000 x $4 = $44,000.

    Have you watched my free lectures on budgeting, because this example is very similar to the example that I work through in my lecture?

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