Question Help - Budgeting

jessbill3

Hi There,

This question is in the revision kit for Budgeting - i thought i understood this question but then i checked the answers and i got a bit confused please can somebody help?

CUMIN COMPANY
the cumin company expects to produce 10,000 units in the month of December. each unit requires 0.5kg of material X. During the production process 2% of material X is wasted. The business will start December with 900kg of X and will end the month with 950kgs. material X costs £1 per kg

Complete the following resource budget for materials;

Resource Budget - Material X
Needed for production 5000kg
Wastage 102kg
Total Requirement 5102kg
Closing Inventory 950kg
Opening Inventory 900kg
Purchases in Month 5152kg
Cost per kg £1
Purchase cost of Material X £5152.04

I managed to get correct; needed for production, closing inventory, opening inventory and cost per kg correct

However, for wastage i got 200, therefore 5200 for total requirement then leading to 5250 for purchases in a month...

how did they get 102 for the wastage... as i thought 100% is 10000, 2% is 200 therefore they would need 10200kg as 200kg is to be wasted?

also NO idea how they got the purchase cost to be £5152.04


PLEASE HELP!

wabisabi

Hi
Production requires 5000 kg, however as 2% is wasted 5000kg is only 98% of what you need to produce this quantity. The calculation for the qty needed is 5000 / 98 x 100 = 5102.04 (ie 5000 for production + 102.04 waste)

Inventory increases by 50kg so the purchased amount will be 5102.04 + 50 = 5152.04 kg @ £1 per kg

Hope that helps

jessbill3

Ahhhh perfect! thanks ever so much for your help!

jessbill3

Ahhhh perfect! thanks ever so much for your help!