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A company manufactures and sells one product which requires 8kg of raw material in its manufacture.The budgeted days relating to the next period are as follows :
Sales 19000 units
opening inventory
of finished goods. 4000 unitsclosing inventory
of finished goods 3000 unitsopening inventory
of raw materials 50000 kgclosing inventory
of raw materials. 53000kgwhat is the budgeted raw material purchases for next period (in kg)
solution
budgeted production ( 19000 + 3000-4000) = 18000 units
RM required for production ( 18000*8 ) = 144000 kg
RM purchases (144000 +53000-50000)=147 000 kgI am not clear on the change in the inventory of finished goods ….
if opening was 4000 and closing was 3000 meaning there was a change of 1000 . but it seems the 1000 is a decrease with led to being subtracted from sales units …my question is why are we subtructing the decrease in finished goods inventory from sales units ?Because there’s a ‘decrease’ in inventory. Since closing inventory is lesser than opening inventory, meaning that company has decided to keep less inventory for the next period than the opening inventory it has in present period.
If you face such problems in budgeting, i would suggest you to simply make T-accounts, and fill the entries you’re given, and find the missing item.
Hope it helped you.
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