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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › budgeting
Each unit of product Zeta requires 3 kg of raw material and 4 direct labour hours. Material costs $2 per kg and
the direct labour rate is $7 per hour.
The production budget for Zeta for April to June is as follows.
April May June
Production units 7,800 8,400 8,200
16.17 Raw material opening inventories are budgeted as follows.
April May June
3,800 kg 4,200 kg 4,100 kg
The closing inventory budgeted for June is 3,900 kg.
Material purchases are paid for in the month following purchase. What is the figure to be included in the cash budget for June in respect of payments for purchases?
My working:
production requirement 8400X3kg = 25,200
closing inventory – 3900
less opening inventory – 4200
which gives us 24,900.
But they used a different figure (4100) in closing inventory and I don’t get it why is that so… why they used 4200 instead of 3900? when this figure (closing inventory) is already given? “The closing inventory budgeted for June is 3,900 kg. “
Given that the cash paid in June is for May purchases, it is the opening and closing inventory for May that is relevant.
Thank you, sir.
You are welcome.
