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Hi Mr. Maffot,
I got this question from a different website and im struggling to arrive at their answer. Please help me understand why.
Q.) Budgeted sales of X for December are 18,000 units. At the end of the production process for X, 10% of
production units are scrapped as defective. Opening inventories of X for December are budgeted to be
15,000 units and closing inventories will be 11,400 units. All inventories of finished goods must have
successfully passed the quality control check. What is the production budget for X for December?My answer for holding cost is $4000 but their answer is $4500. And ordering cost, their answer is $400000.
Please explain how it is done.
The question as you have typed it asks how many units will be produced and makes no mention of holding costs or ordering costs. They will budget on producing 16,000 units.
Given that there is no information about costs given in the question I have absolutely no idea where you are getting $4,000 from.
Oh! My apologies Mr. Maffot, I have typed out the wrong question. My bad. The question is:
Q.)Bakers & Sweets Plc are known for brownies for which raising agent is required. Annual demand of raising agent is 20,000 kilograms. The demand is considerably even through the year. The cost to place each order is Rs. 50 where is cost to hold one kilo of raising agent is Rs. 2.If each order is of 3,000 units and buffer stock is maintained at 1,000 units around the year then:
What is the combined total annual costing of holding and ordering the raising agent?
This is the right question.
I am surprised that your book does not show the workings for the answer. You should be using a Revision Kit from one of the ACCA Approved Publishers – they do show the workings 🙂
The holding cost per year is (3,000/2 + 1,000) x Rs 2 = Rs 5,000. It seems as though the answer in your book is wrong.
The ordering cost per year is 20,000/3,000 orders x Rs 50 = Rs 333.33.
Again, either your book has made a mistake (or you have typed out the question wrongly. Are you sure that the demand is 20,000 per year and not 20,000 per months?)
In future you must ask in the Ask the Tutor Forum if you want me to answer. This forum is for students to help each other.
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