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Dear Sir,
J Co makes a component M which uses 3 kg of raw material X. The opening inventory at the start of next year is expected as follows.
Opening inventory of raw material X 5,000 kg @ $4
Opening inventory of component M 3,000 units
Budgeted sales of component M are expected 48,000 units (occurring evenly throughout they 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 salesWhat is the material purchases budget for the year?
Material purchase = material required – opening inventory + closing inventory
I can calculate the material required (159,000 kg) and opening inventory (5,000 kg) is given but i don’t know how to calculate the closing inventory.
Please explain how to calculate the closing inventory for this.
Thank you.You need to calculate how many units will be produced (the sales as adjusted by the opening and closing inventory if the component).
Then divide by 12 to get one months production.
Then multiply by 3 to get the number of kgs.Sir,
Above question ” What is the material X purchases budget for the year?”
The answer is ” Material X purchases budget in (Kg)
= Closing Inventory + production – opening inventory
= (96000/12) + 159000 – 5000
= 162000kg”But I cannot get the ” 96000 for closing inventory and question also mentions that
Closing inventory of raw material X – One month’s worth of production.Thanks in advance for the answer.
I assume you found this question in the BPP revision kit. If so, then their answer is wrong. (Have you checked their errata sheet that is on their website?)
The closing inventory of the component M is 2 x 48,000/12 = 8,000 units
Therefore the number of M’s to be produced will be 48,000 – 3,000 + 8,000 = 53,000
Therefore the material needed for production = 53,000 x 3kg = 159,000 kgTherefore the correct closing inventory of material is 159,000 / 12 = 13,250 kg
(BPP seem to have removed this question from the latest edition of their Revision Kit 🙂 )
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