- This topic has 3 replies, 2 voices, and was last updated 10 years ago by
.
- Posts
Hello,
Could You please help me with this question.A process has a normal loss of 10% and budgeted output is 4500 litres for the period. Opening inventory of raw material is 600 litres and is expected to increase by 20% by the end of the period
The material usage budget is:
A) 4,500 litres
B) 5,000 litres
C) 5,133 litres
D) 5,120 litresThe answer is B 4,500/0,9=5,000 litres with adnotation that opening and closing inventories are relevant to the material purchases budget, not the material usage budget. IS that true? In Chapter 15, example 1, we calculated material usage budget and we added increase of the inventory to budgeted sales.
The answer is correct.
We adjust sales by the opening and closing inventory of finished goods in order to find the production and therefore the usage (which is what happened in Chapter 15, example 1).
We adjust the usage by opening and closing inventories of raw materials to find the purchases (which we also did in Chapter 15 example 1, but it not relevant here because as the answer says, it asks for the usage).
- You must be logged in to reply to this topic.