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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 6 months ago by John Moffat.
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  • December 26, 2021 at 7:05 am #644840
    dingdong02
    • Topics: 13
    • Replies: 1
    • ☆

    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?

    December 26, 2021 at 3:42 pm #644865
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 49602
    • ☆☆☆☆☆

    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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