Budgeting Task 4 (a)

Mjepson2
Mjepson2 Registered Posts: 2 New contributor ?
Hello,

I am having a problem trying to work out this question. This should be bread & butter but my mind has gone blank so it's probably quicker to ask...

Materials - Each unit produced requires 0.75kg of material. Closing inventory will be valued at the budgeted purchase price.

Production Budget
Opening Inventory of finished goods - 92,400 units
Production - 589,000 units
Sub Total - 681,400 units
Sales - 600,000 units
Closing Inventory of finished good - 81,400 units

Materials Kg £
Opening Inventory 50,000 60,000
Purchases 460,000 598,000
Sub-Total 510,000 658,000
Used in Prdn.
Closing Inventory

Please can someone explain how the the used in prdn & closing inventory is valued?

I multiplied the closing inv. of finished goods by the material requirement (81,400 x 0.75) however my answers differ to the sample answers.

Many thanks,

Mark

Comments

  • lrod86
    lrod86 Registered Posts: 3
    I need a reply to this one too, I dont get it
  • SandyHood
    SandyHood Registered, Moderator Posts: 2,034
    edited June 2016
    Dear Irod86

    I think all the clues are in the task.
    I've changed the sequence of the rows because they make it easier for me to explain

    1. The kg used in production
      589,000 units x 0.75 kg/unit = 441,750 kgs
    2. The closing inventory in kgs
      I put balance on the answer I used because you just find the difference between the sub-total and the kgs used in production
      510,000kgs - 441,750kgs = 68,250 kgs
    3. The purchase cost per kg
      Take the total purchase cost divided by the kgs purchased
      £598,000/460,000 = £1.30/kg
    4. Find the value of the closing inventory
      Total kgs in cl inventory x purchase cost per kg
      68,250 kgs x £1.30/kg = £88,725
    5. Find cost of material used in production
      Sub-total cost less value of closing inventory
      £658,000 - £88,725 = £569,275
    Sandy
    [email protected]
    www.sandyhood.com
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