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Budgeting

CCarl10y ago
Good day, Sir Moffat. I have a question I wanted to ask: Kinn Co produces a single product. Each finished product requires 3 kg of raw materials. The raw material costs $6 per kg. You are given the following information. (1) Kinn Co prepares budgets on a quarterly basis. Each quarter consists of 13 weeks, with five working days per week (2) It is the company's policy to maintain an inventory of finished goods at the end of each quarter equal to five 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 units for the next four quarters are: Quarter 1 1,950,000 Quarter 2 2,275,000 Quarter 3 3,250,000 Quarter 4 2,275,000 (5) Selling price is $56 per unit (6) Kinn Co aims to maximise its profits Question: Kinn 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. What is the budgeted cost for raw material usage in Quarter 3 to the nearest thousand dollars? The answer is: $ 57150 thousand My question is how did they arrive with that certain answer? This question came from the extra mtqs portion of the specimen page. Thank you in advance. God bless :)
John MoffatJohn MoffatTutor10y ago#1
If they are going to produce 3,175,000 units, then they will use 3,175,000 x 3kg of raw material, and the cost of the material used will be at $6 per kg. 3,175,000 x 3kg x $6 = $57,150,000
CCarl10y ago#2
Thank you for the quick response, Sir Moffat! God bless :)
John MoffatJohn MoffatTutor10y ago#3
You are welcome :-)