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Hi Sir,
Could you please tell me how to work this out?
Thanks.A company manufactures and sells one product which requires 8 kg of raw materials in its manufacture. The budgeted data relating to the next period are as follows:
Units
Sales
19,000
Opening inventory of finished goods
4,000
Closing inventory of finished goods
3,000
Kg
Opening inventory of raw materials
50,000
Closing inventory of raw materials
53,000
What is the budgeted raw material purchases for next period?You can calculate the production by taking the sales units and adjusting by the opening and closing inventories.
This gives production of 18,000 units.Since each unit needs 8kg of material, they must use 8 x 18,000 = 144,000 kg of material.
To find how much material they actually purchase, you need to adjust the usage by the opening and closing inventories of material.
I work through a very similar example in my free lectures on budgeting. The lectures are a complete free course for Paper F2 and cover everything needed to be able to pass the exam well.
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