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Dear Mr Moffat
Could you please explain why the answer of task 4 is 0. No problem with the others tasks.
Kinn Co produces a single product. Each finished product requires 3 kg of raw materials. The raw material costs $6 per kg.
You are given the following information.
(1)
Kinn Co prepares budgets on a quarterly basis. Each quarter consists of 13 weeks, with five working days per week
(2)
It is the company’s policy to maintain an inventory of finished goods at the end of each quarter equal to five day’s demand for the next quarter whenever possible
(3)
It is not possible to hold raw material inventory because of its perishable nature, but it is possible to hold inventory of finished goods at any level
(4)
Forecast sales units for the next four quarters are:Quarter 1
1,950,000
Quarter 2
2,275,000
Quarter 3
3,250,000
Quarter 4
2,275,000
(5)
Selling price is $56 per unit
(6)
Kinn Co aims to maximise its profits
Task 1Calculate the budgeted opening and closing finished goods inventory for Quarter 1 to the nearest thousand units.
Opening finished goods inventory
‘000 units
Closing finished goods inventory
‘000 units
Task 2The desired closing finished goods inventory in Quarter 4 is 150,000 units. Calculate the budgeted number of units to be produced in Quarter 4 to the nearest thousand units.
Production in Quarter 4
‘000 units
Task 3Kinn Co budgets to produce 3,175,000 units in Quarter 3 to meet sales demand and to achieve a closing finished goods inventory of 175,000 units.
What is the budgeted cost for raw material usage in Quarter 3 to the nearest thousand dollars?
$ ‘000Task 4
The company’s raw material supplier has informed them that due to restrictions on the manufacture of the material, the supply to the company will be restricted to 6,600,000 kg per quarter for the foreseeable future beginning from quarter 1. Kinn decides to purchase the maximum amount of material available in each quarter and build up inventory of finished goods whenever possible. Under these restrictions the budgeted opening finished goods inventory in quarter 3 will be 325,000 units.Calculate a revised closing finished goods inventory for Quarter 3 to the nearest unit, taking into account the restrictions on the raw material supply.
unitsThanks
Gabbi
In quarter 3, the forecast sales are 3,250,000. So at 3kg a unit, they would need 9,750,000 kg.
They have 325,000 x 3 = 975,000 kg in opening inventory and the can only buy 6,600,000 kg, which gives them a total of 7,575,000 kg.
This means that they will use all of the material (so no closing inventory) and produce as many as they can. The rest of the demand will have to be turned away – they do not have enough material to be able to produce all that is demanded.
Hi i have another question of budgeting.
Its from the BPP book but i am confused with how they got the answer.
Company makes a component M which uses 3 kg of raw material X. Opening inventory of start of year is: 5,000kg ($4 a kg) and 3,000 units. Budgeted sales is 48,000 throughout the year (evenly). Closing inventory at the end of the year is:
Raw material x = one months worth of production
Units of M = 2 months worth of sales.i have managed to work our the closing units of m = 8,000 but the book has the closing inventory of material x to be (96,000/12) = 8,000. i do not know where they have got the figure 96,000 from?
please help
The answers are on the ACCA website.
I am not going to spend all afternoon showing the workings for each part of the answer – if you have watched the free lectures then some parts should not cause you a problem,
Is you say which part is causing you a problem then I will try and help.
The opening inventory for quarter 1 will be equal to 5 working days (i.e. 1 weeks) demand in quarter 1. Since demand in quarter 1 is 1,950,000 and the quarter is 13 weeks, the opening inventory must be 1,950,000/13 = 150,000 units.
Similar the closing inventory for quarter 1 will be one weeks demand in quarter 2, which is 2,275,000/13 = 175,000 units.
Task 2:
Sales = opening inv + production – closing inv.
We know the sales are 2275; we know the closing inventory is 150. The opening inventory is the closing inventory of quarter 3 which is one weeks sales of quarter 4. So it is 2275/13 = 175.If you put these figures in the equation above, you get the production to be 2250.
Task 4 does not ask for the sales in quarter 4. It asks for the closing inventory for quarter 3!
Hi John,
For task 2
Opening inv is 175k
Production is 2,275.000
Less: Closing 150kMy calculator and manual workings show that the total is £2,300.00. How did you get to 2,250.000 as an answer. I feel silly for asking this, but I dont know what im doing wrong.
Thank you!
Sales = opening inv + production – closing inv.
We know the sales are 2275; we know the closing inventory is 150. The opening inventory is the closing inventory of quarter 3 which is one weeks sales of quarter 4. So it is 2275/13 = 175.Therefore 2275 = 175 + production – 150 = 25 + production
Therefore production – 2275 – 25 = 2250
Sales = opening inv + production – closing inv.
We know the sales are 2275; we know the closing inventory is 150. The opening inventory is the closing inventory of quarter 3 which is one weeks sales of quarter 4. So it is 2275/13 = 175.Therefore 2275 = 175 + production – 150 = 25 + production
Therefore production – 2275 – 25 = 2250
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