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J Co makes component M which uses 3 kg of material X. Opening inventory at start of next period is:
X 5000 kg @ $ 4
M 3000 units
Budgeted sales of component M expected to be 48000 units (occurring evenly throughout the year)
Closing inventory at year end is:
X One month’s worth of production
M Two month’s worth salesI’ve got production of M 53000 units. Consumption of X 159000 kg.
I’m confused at what should be the purchases of X?
I’m getting 166000 kg, in book it is 162000.For M, the opening inventory is 3,000, the sales are 48,000 and the closing inventory is 8,000 (2/12 x 48000). So the production will be 53,000 units.
This means they will need 53000 x 3 = 159,000 kg of X for the production.
For X, the opening inventory is 5,000, they need 159,000 for production. It is the closing inventory of X that is the problem and is where the question is very badly worded – it can be understood in two ways.One way is to do what you did – if they sell 48,000 then overall they need to produce 48,000 and so closing inventory of X is 1/12 x 48,000 x 3kg = 12,000 kg.
This gives purchases of 166,000 kg.The other (maybe better) way is to say that if they are going to produce 53,000 units, the the closing inventory of X for one months production is 1/12 x 53,000 x 3kg = 13,250 kg.
This gives purchases of 167,250 kg.I cannot see how your book gets 162,000!!!
Do they not show any workings with their answer??
Well that makes no sense at all!!!
I think they have made a mistake and that the correct answer is 166,000 🙂A favourable fixed overhead capacity variance is likely to arise if a new machine is bought to replace an unreliable one.
A true
B false?
Please helpIt is true!
It depends how they budgeted the hours available from the unreliable machine.
If they took into account the unreliability in the budgets, then buying a new one will give more capacity and therefore a favourable capacity variance.
They may not have done, but it is ‘likely’ and therefore the answer is ‘true’.
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