2013 Budgeting Sample Assessment 1 - Question 3a

flyhigh

I am trying to do this question and struggling with the result of the £ answer in the "Used in Production" Line.

The production requirement is 589,000 units and each unit requires 0.75kg. Thus 589,000 * 0.75 = 441,750 kg. Fine.
To get the cost, as I have understood the teaching - the rule of thumb is "Cost divided by Qty".
Therefore £598,000 purchased 460,000kg giving a price per kg of £1.30
The cost of 441,750 kg used in production is 441,750 * 1.3 = £574,275

However the "correct" answer gives £569,275. Working the theory above backwards I get a price of £1.28868?

Where is my process going wrong?

Thanks very much

furno11

Hi,

Workings are as follows:

You are correct in terms of material required: 589,000 x .75 = 441750kg
You have to remember that you have opening inventory to be used up first
Therefore the 441750kg is made up of 50,000kg (opening stock) and 391750kg of the purchases
You are right that purchases equals £1.30 per kg, so 391750 x 1.30 = £509725
Add this to the total opening inventory (50,000 kg used in production), £60,000
=509725 + 60000 = £569275

Hope this helps

flyhigh

Thank you very much