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A company’s sales forecast show sales demand of 54000 units in the next month. The company has the policy to maintain the same stock level at the end of each month. 10% of units produced are lost each month. Each unit of product requires 2kg of raw material each kg costs $5. What should be the value of purchases in the next month?
I’m getting answers 540,000 but the answer is 600,000 I don’t know how?Given that the inventory level is staying the same, the production will have to be enough to cover the sales of 54,000 units.
However, because 10% of the production is lost, it is 90% of the production that will need to be 54,000 units. So the total production will have to be 54,000/90% = 60,000 units.
(They produce 60,000 units of which 10% (60,000) is lost, which leaves them with 54,000 to sell).
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