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 units
Each 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..
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Budgeting
10y ago#1If 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 kg
The 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 Kg
The cost is 34,400 x $5 = $172,000
thank u very much sir :) but im a bit confused about the opening inventory part
10y ago#3The inventory at the start of month 2 will be the inventory left at the end of month 1.
This will be 20% of the following months production - so 20% of month 2's production.
I hope that makes it clear.
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