A manufacturer holds inventory of a raw material item. The manufacturer makes and sells a single product, and each unit of product uses 2.5 kgs of the raw material. The budgeted production for the year is 6,000 units of the product. At the start of the year, the manufacturer expects to have 1800 units of the raw material item in inventory, but plans to reduce inventory levels by one-third by the end of the year.
What will be the budgeted purchase quantities of the raw material item in the year?
Kindly explain how to solve this I’m completely lost here
Number of units sold = opening units + purchased units – closing units.
So, for example, if you started with 100 kg and ended with 120 kg, having bought 300 kg, you must have sold 280 units. Think of the 300 units bought being split between 20 needed to increase inventory and the rest sold.
Kg sold = 6000 x 2.5 = 15,000
Opening inventory = 1800 kg so closing inventory = 1800 x 2/3 = 1200
15,000 = 1800 + Purchased – 1200 = 600 + purchased
So purchased must be 15,000 – 600 = 14,400
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