- This topic has 3 replies, 2 voices, and was last updated 10 years ago by
.
- Posts
Hi John sir, plz guide me about the following: I type here the whole question but only the point of confusion is increase in inventory level. It is mentioned in the question that company plans to increase material inventory level to 110,000. I got is as our purchase budget should be of 110,000. but in solution author adds up 10,000 in 110,000. so confusing. look at the following:
A company manufactures widgets. Each widget requires two units of raw materials, which cost $3 each. Production and sales quantities of widgets each month are as follows:
MONTH SALES & PRODUCTION UNITS
December(actual) 50,000
January(budget) 55,000
February(budget) 60,000
March(budget) 65,000In the past, the business has maintained its inventories of raw materials at 100,000 units. However, IT PLANS TO INCREASE RAW MATERIAL INVENTORIES TO 110,000 units at the end of January and 120,000 at the end of February. The business takes one month’s credit from its supplier.
CALCULATE THE FORECAST PAYMENTS TO SUPPLIER EACH MONTH, FOR RAW MATERIAL PURCHASES.
In January it plans to produce 55,000 units. So it needs 55,000 x 2 = 101,000 units of materials.
However, in January it also intends to increase inventory from 100,000 to 110,000. So in addition to the 110,000 needed to produce the units, it needs to purchase another 10,000 to increase the inventory.
So in total it needs to buy 120,000Hope that helps.
- You must be logged in to reply to this topic.