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The two really go together. Tactical planning is short-term planning, and the budgets are a short-term plan.
Hey John,
Following is the question, I have small problem here . In Solution they caluclated closing raw material 96000/12, I don’t know how they got this figure. Could you please make material purchase budget for me. Especially how to calculate closing raw material. Thanks.J Co makes a component M which uses 3kg of raw material X. The opening inventory at the start of next year is expected to be as follows.
Opening inventory of raw material X 5,000kg @ $4
Opening inventory of component M 3,000 units
Budgeted sales of component M are expected to be 48,000 units (occurring evenly throughout the year).
Closing inventory at the end of the year is as follows.
Closing inventory of raw material X One month’s worth of production
Closing inventory of component M Two month’s worth of sales
(a) How many units of component M are to be produced in the year?
(d) What is the material X purchases budget for the year?Many people have asked the same question in the past, andI have no idea how they got 96,000 – it must be a typing error.
The closing inventory of the component = 2/12 x 48,000 = 8,000 units
Therefore the production is 48,000 – 5,000 + 8,000 = 51,000 units
Therefore the closing inventory of raw material is 1/12 x 51,000 x 3 = 12,750 kg
Therefore the purchases of raw materials = (51,000 x 3) – 5,000 + 12,750 = 160,750 kg
Good day John,
Please according to the above question I thought the production calculation is:
48000-3000+8000=53000unitsOops – it is now me who has made a typing error 🙁
Thank you for noticing!What I wrote should have been:
The closing inventory of the component = 2/12 x 48,000 = 8,000 units
Therefore the production is 48,000 – 3,000 + 8,000 = 53,000 units
Therefore the closing inventory of raw material is 1/12 x 53,000 x 3 = 13,250 kg
Therefore the purchases of raw materials = (53,000 x 3) – 5,000 + 13,250 = 167,250 kg
I hope I am correct now 🙂
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