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Y Company produced a single product. Each finished production required 4kg of raw materials. The raw material cost $6 per kg.
You are given the following information.
1.Y co prepares budget on a quarterly basis. Each quarter consists of 13 weeks, with 6 working days a week.
2.It is company policy to maintain an inventory of finished goods at the end of each quarter equals to six 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 unit for the next four quarters are :
Quarter 1 – 1,950,000
Quarter 2 – 2,275,000
Quarter 3 – 3,250,000
Quarter 4 – 2,275,0005. selling price is $56 per unit
6.Y co aims to maximize its profitsplease help the below question :
Y 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. It is expected a 20% loss during the production.
What is the budgeted cost of raw material usage in quarter 3 to nearest thousand dollars ?
thank you
They need to have 3,175,000 units produced.
However because 20% are lost during production it means that the 3,175,000 is only 80% of what they are actually working on.
Therefore they must be working on 3,175,000 / 80% = 3,968,750 units.
You know from the first line of the question how many kg of raw materials are need for each unit, and how much each kg costs, so now you should be able to calculate the total budgeted cost.
produce units 3,175,000 x 100/80 = 3,968,750 units x 4kg = 15,875,000 kg x $6 per kg = $95,250,000.
nearest thousand dollars of budgeted cost of raw material usage should be $95,250,000 ?
thank you
another question :
the company’s raw material supplier has informed them that due to restrictions on the manufacture of raw material, the supply to the company will be restricted to 6,600,000 kg per quarter for the foreseeable future beginning from quarter 1. Y co 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.
please help. thank you
You know the opening inventory of finished goods.
You can calculate how many they are capable of producing from the 6,600,000 kg available.
So you know how many they have available to sell.
If the demand is more than the amount available, then there will be zero inventory left.
If the demand is less than the amount available then the inventory left will be the difference.Opening inventory of FG is 325,000 units
Produce units 6,600,000 kg / 4 kg = 1,650,000 units available for sell ?But I’m not able to get the zero inventory left ( answer is zero units ) , possible advise again ?
Thank you
I advised correctly before!
If the opening inventory is 325,000 units, and you then produce another 1,650,000 units, then that means you have a total of 1,975,000 available to sell.
Now how many do they have left at the end of the quarter?
why opening added to produce units ? produce unit whether is sales unit for restrictions of quarter 3 sales unit of 3,250,000?
production budget is in quantity it should be sales unit + closing – opening + loss unit,
same material purchase budget.can you please explain the calculation for this question , I’m sorry , sir. thank you.
Think logically don’t simply learn rules.
Suppose you started with 10 units and then made another 50 units. How many units have you now got? How many are you able to sell?
60 in both cases.
It is exactly the same logic here.
available for sale 1,975,000 units means that sold unit it should be also 1,9750,000 units?
therefore, understanding the unit to remain in inventory is zero?can you please explain if the demand is more than the amount available, then there will be zero inventory left ? demand in this question is how ?
if the demand is less than the amount available then the inventory left will be the difference ? amount available is how much?why use logic here ? is not use functional budget ?
thank you
You have to use common sense – there is no point in learning formulae. The exam is testing your understanding – not how well you have learned formulae.
If demand is more than the amount available, then all you can sell is what is available and there is zero inventory left at the end.
This question tells you the demand in quarter three. Since it is more than the amount available, the closing inventory is zero.
hi sir , thanks your explanation
if closing finish goods inventory in Quarter 4 is 150,000 units. calculation the number of units to be produced in quarter 4 to the nearest thousand unit, whether correct below?
quarter 4 – 2.275,000 x 6/78 = 175,000 units for opening ?
( 13 week x $6 per kg = 78 days per quarter ? closing inventory based on 6days demand but now question give is 150,000 units? )therefore 2,275 +150-175=2,250
2,250 units should be produce units in quarter 4 ?thank you
hi sir , thank you for the reply
if calculate the budgeted opening and closing finished goods inventory for quarter 1 to thousand units.
the calculation of the following correct ?
opening finished goods inventory : 1,950,000 ( sales units quarter 1 ) x 6/78 = 150,000 units ?
closing finished goods inventory : 2,275,000 ( sales unit quarter 2) x 6/78 = 175,000 units ?thank you
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