material purchase budget

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November 9, 2012 at 7:00 pm #55147
valiaty
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When we have to prepare a material purchase budget Generally u follow this:

Sales xxx
ADD closing stock xxx
LESS opening stoc (xxx)
———–
Production xxx

BUT I FOUND IT ALSO LIKE THIS:

material purchases budget xxx
LESS closing raw material stock (xxx)
ADD opening raw material stock xxx
———–
material usage budget xxx

While in the first exampe we ADD CLOSING stock , in the second one we deduct them..
Can you explain me the difference and also where can I find material to learn more about them?
November 10, 2012 at 9:14 pm #106929
John Moffat
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Your first statement is for calculating the number of units produced.
It is because the number of units sold will be the opening inventory + units produced – closing inventory.

When we know how many units we are going to produce, then we can calculate how many units we need to buy. The number used will be equal to the opening inventory of raw materials + the units purchases – the closing inventory of raw materials. You would use this to calculate the number of units purchased.

This is all Paper F2.

(and the examiner will not use the word ‘stock’. It is now called ‘inventory’)
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