Skip to content

Management Accounting · Budget preparation

Materials Usage and Purchases Budgets Explained

Updated 11 October 2026 · Fact-checked

The materials usage budget shows how much material production needs. The purchases budget shows how much you must buy. Calculate usage as production units × material per unit (grossed up for wastage), then purchases = usage + closing inventory − opening inventory. Convert to money by multiplying by the price per unit.

Understand Materials Usage and Purchases Budgets

A budget is a plan. Once you know how many units a business will make (the production budget), you must plan the materials to make them. This happens in two steps.

The materials usage budget answers: how much material will production use? You multiply planned production units by the material needed per unit. If some material is lost in production, you must increase the amount to cover the loss.

The materials purchases budget answers: how much material must we buy? The business does not buy exactly what it uses. It may have material in stock at the start, and it may want stock left at the end. So purchases = usage plus the planned increase in inventory, or usage minus the planned decrease.

Think of a kitchen. You need 10 kg of flour for the week. You already have 3 kg, and you want 4 kg left at the end. You must buy 10 + 4 − 3 = 11 kg.

The budget is first built in quantities (kg, litres, metres). You then multiply by the price per unit to get the cost. Usage is valued at the price of the material used. Purchases are valued at the price you expect to pay. In the objective test, questions usually give one price, so the cost is simply quantity × price.

Key formulas to remember

Usage for good output
Units to produce × material per unit
Use the production budget figure, not the sales figure.
Usage with normal wastage (loss as % of input)
Input required = Good output requirement ÷ (1 − wastage % of input)
If the wastage is stated as % of input, divide. If stated as % of good output, multiply by (1 + %).
Purchases quantity
Purchases = Usage + Closing inventory − Opening inventory
All three must be in the same units.
Purchases cost
Purchases quantity × price per unit
Use the expected purchase price.
Production needed (link to sales)
Production = Sales + Closing finished goods − Opening finished goods
Use this first if only sales are given.

How to solve Materials Usage and Purchases Budgets questions

Follow this order for any usage or purchases question. Work in quantities first, then convert to money.

  1. 1Find the production units. If you are given sales, adjust for opening and closing finished goods inventory.
  2. 2Find the material needed per unit of output.
  3. 3Multiply to get the usage quantity for good output.
  4. 4Adjust for wastage or losses. Check whether the % is of input or of output.
  5. 5Add closing raw material inventory and deduct opening raw material inventory to get purchases quantity.
  6. 6Multiply by the price per unit if the question asks for cost.
  7. 7Check the answer asked for: usage or purchases, quantity or cost, and the units required.

Quickest way: Three-line usage and purchases table

When to use it: Use it for any number-entry or multiple choice question where you need purchases quantity or cost.

  1. Write: Usage = ... ; + Closing = ... ; − Opening = ... ; = Purchases.
  2. Fill in usage first, with wastage already included.
  3. Add and subtract the inventories, then multiply by the price only at the end.
  4. Sense check: if inventory is rising, purchases must be higher than usage; if falling, lower.

Common mistakes in Materials Usage and Purchases Budgets

  • Using sales units instead of production units for usage

    Sales is the first number given and looks like the starting point.

    Fix: Always work out production first. Materials are used to make goods, not to sell them.

  • Adding opening inventory and deducting closing inventory

    Students reverse the logic.

    Fix: Remember: closing inventory must be bought, opening inventory is already there. Purchases = usage + closing − opening.

  • Multiplying by (1 + wastage %) when wastage is a % of input

    It feels like the natural way to add on a percentage.

    Fix: If 10% of input is lost, good output is 90% of input. Divide by 0.9, not multiply by 1.1.

  • Mixing finished goods inventory with raw material inventory

    Both are called inventory in the same question.

    Fix: Finished goods adjust production. Raw material inventory adjusts purchases. Label each one.

  • Valuing in money before adjusting quantities

    Students rush to use the price.

    Fix: Finish the quantity calculation first. Then apply the price once.

Worked examples

Example 1

A company plans to sell 4,000 units. Opening finished goods are 500 units and closing finished goods are 700 units. Each unit needs 3 kg of material. Opening raw material is 1,200 kg and closing raw material is 1,500 kg. Material costs $4 per kg. What is the budgeted purchases cost?

Show the solution
  1. Production = 4,000 + 700 − 500 = 4,200 units.
  2. Usage = 4,200 × 3 kg = 12,600 kg.
  3. Purchases = 12,600 + 1,500 − 1,200 = 12,900 kg.
  4. Cost = 12,900 × $4 = $51,600.

Answer: $51,600

Example 2

A business will produce 9,000 good units. Each good unit needs 2 kg of material. Normal wastage is 10% of material input. Opening raw material inventory is 2,500 kg and closing inventory is 2,000 kg. What is the purchases quantity in kg?

Show the solution
  1. Good output requirement = 9,000 × 2 = 18,000 kg.
  2. Wastage is 10% of input, so good material is 90% of input.
  3. Input required = 18,000 ÷ 0.9 = 20,000 kg. This is the usage.
  4. Purchases = 20,000 + 2,000 − 2,500 = 19,500 kg.

Answer: 19,500 kg

Exam tips

  • Read the wastage wording carefully: percentage of input and percentage of output give different answers, and the wrong one is always an option.
  • Check what the question asks for: usage, purchases, quantity or cost. Examiners offer the other figures as wrong options.
  • In multiple choice, test your answer with the direction check: rising inventory means purchases above usage.
  • For number entry, give the figure in the units asked, and do not round until the end.

Practice questions from Budget preparation

Materials Usage and Purchases Budgets in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Materials Usage and Purchases Budgets: frequently asked questions

What is the difference between a materials usage budget and a purchases budget?

The usage budget shows the material production will consume. The purchases budget shows what must be bought after allowing for opening and closing raw material inventory. They are equal only if inventory does not change.

How do you calculate the materials purchases budget?

First find production units, then usage in quantity including wastage. Add closing raw material inventory and deduct opening raw material inventory. Multiply by the price per unit for the cost.

How does wastage affect the materials budget?

Wastage means you must put in more material than ends up in good output. This raises usage and so purchases. Check whether the percentage is of input or of output before adjusting.

Do I use sales or production figures for materials?

Use production. If you are given only sales, convert to production using the change in finished goods inventory, then calculate materials.