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A company manufactures a single product. Budgeted production for the first three months of next year is as follows:
month 1 -8000 units
month 2-9000 units
month 3- 7000 unitsEach unit uses 4kg of raw material costing $5 per kg. The budgeted raw material inventory at the end of each month is to be 20% of the following months production.
What are the budgeted raw material purchase of month 2 of nest year [in $’s]
Please help me answer this question, thanks
Inventory used for month 2’s production is 4 x 9000 = 36,000 kg
The opening inventory for month 2 (month 1’s closing inventory) is 20% x 36000 = 7,200.
The closing inventory for month 2 is 20% x 7,000 x 4 = 5,600.So the purchases in month 2 are 36,000 – 7,200 + 5,600 = 34,300 kg.
They are costed out at $5 per kg
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