Question on Budgeting - help needed!

cazalino

Can anybody tell me how you would calculate the answer to this question as i cant get my answer to match the correct answer! 50,000 items of product M are required to be manufactured in April. Each requires 10 meters of raw material 20% of raw material is wasted during manufacture. Opening Inventory is 4000 meters, closing inventory is 6000 meters - thanks guys in advance!

cazalino

Maybe i should add... the answer is 627000 but i keep getting 627500. I think its to do with the opening/closing stock - i dont know how to treat this

steve2008

The wastage only occurs during the manufacturing process. So there is no wastage on the increase in inventory. Add it after allowing for the production wastage.

kkelly

Hi cazalino
50,000 * 10 / .8 ( to allow for 20% wastage ) = 625000
add in increase in inventory +2000 = 627000

Hope this helps!!

cazalino

Arh yes that rings a bell now from reading the text book where you add the difference of increase ie 2000 in this case. Thank you thats cleared that one up for me :thumbup1: