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Hello,
Hoping you could help me with the working for a P1 pearson mock question..
A company has a production budget for the next 2 years of 36,000 units per annum to be produced evenly throughout both years.
Each unit uses 2 kg of material.The estimated opening raw material inventory at the start of the next year is 2,000 kg but the company then wants to hold sufficient raw material inventory at the end of each month to cover the following month’s production.
The budget material cost is $12 per kg.
What is the material purchases budget for next year ?
Give your answer to the nearest $000.Answer is 888
However I’m getting 912
My working was
Required stock = 36000 units * 2kg = 72000
+ 1 month’s holding stock = 3000 * 2kg = 6000Less 2000kg closing stock
= 76000kg required x £12 = 912000
Not sure why the mock has 888000
Many Thanks
JamesHi, Thanks for your question.
Im afraid it looks like the Pearson paper has an error in it -CIMA have acknowledged there were errors in the paper initially – but I was under the impression these had been removed.
I will confirm with CIMA – but your method looks absolutely right.If you are getting similar questions in your exam kit correct – then please dont worry about this one – it looks like a detail must\ve been missed out somewhere.
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