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A company manufactures a single product. Budgeted production for the first three years are as follows:
Month 1- 8000 units
Month 2- 9000 units
month 3- 7000 unitsEach unit of uses 4kg of raw materials 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 budgeted raw materials purchases for month 2 of next year in $??
could you kindly help me wiz this also sir?? ihve faced difficulty wiz zis question on the mock exams of opentuition..
If they produce 9,000 units, then they need 9,000 x 4 = 36,000 kg of material.
The opening inventory of materials is the same as the inventory at then end of month 1 and so is 20% x 9,000 x 4 = 7200 kg
The closing inventory is 20% x 7,000 x 4 = 5,600 kgThe need 36,000 kg for production but they already have 7,200 at the start and want 5,600 to be there at the end.
Therefore they need to buy 36,000 – 7,200 + 5,600 = 34,400 KgThe cost is 34,400 x $5 = $172,000
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