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J Co makes a component M which uses 3 kg of raw material X.The opening inventor at the start of the year is expected to be as follows:
Opening inventry of raw material X:5000kg @$4
Opening inventory of component M: 5000 units
Budgeted sales for component M are expected to be 48000 units (occuring evenly throughout the year)Closing inventory of raw material X: One months worth of production
Closing inventory of component M: Two months worth of sale .how do u calculate the quantity for material purchased . i was able to calculate the production units but got stuck in calculating the purchased material . ?
Thank you !
I guess that you found this example in the BPP Revision Kit, and their answer makes no sense 🙂
If you use the search space on this page ( upper right) then you will find that many of our users have asked about this and I have answered.
sorry to bother you again sir . but i didnt find it ..can you send me a link instead .. thank you ! 🙂
I cannot find it now either 🙂
The budgeted production is 48,000 – 5,000 + (2/12 x 48,000) = 51,000 units.
Therefore the material used in production = 51,000 x 3 = 153,000 kg
What is bad about the question is the statement that the closing inventory of material is one months worth of production, because this could mean more than one thing.
If you take it as 1/12 x 153,000 then it is 12,750 kgTherefore the purchases of material are 153,000 – 5,000 + 12,750 = 160,750 Kg (which are then costed at $4 per kg).
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