Infinity manufactures and sells a single product. The estimated sales for next year are 10,000 units.
Information relating to opening and closing inventory are expected to be as follows:
Opening inventory
Direct Material
2,000 kg
Finished Goods
1,150 units
Closing inventory
Direct Material
4,000 kg
Finished Goods
2,550 units
The expected loss during the production process is 10%. The finished product reject rate is 5%. The direct material prices for Year 5 are expected to be 20% higher than the standard price. The standard direct material cost is $20 per kg. The direct material cost per unit produced is $36.
What is the budgeted material purchases during the year?
The answer is 624000. Can you explain to me how to get this answer. Thank you!
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question help
2y ago#1Look at finished goods first.
If opening stock is 1150, closing is 2550 and 10,000 are to be sold, then ignoring the 5% rejects, the company would need to make 10,000 + 2550 - 1150 = 11400. However, now taking into account the 5% rejection, 11400 must represent 95% of units made. So, made units = 11400 ÷ 0.95 = 12,000.
Std cost per kg = 20 and std cost in each unit is 36. This implies each unit takes 1.8kg.
Ignoring the material losses, making 12000 units would take 12,000 x 1.8kg = 21 600. Now taking into account the material loss of 10% this must represent 90% of the material needed, so material use must be 21 600/0.9 = 24,000. If material inventories are also to rise from 2000 to 4000 then 26,000kg must be the purchase budget in kg.
In $ this would be 26,000 x 20 = $520,000 at the current price. If prices rise by 20%, the budget must be 520,000 x 1.2 = 624,000.
This is a difficult question!
thank you sir!!
2y ago#3You're welcome.
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