ACCA Applied Knowledge · Management Accounting · Budget preparation
Brindle Ltd budgets production of 5,000 units next quarter, each needing 2 kg of material costing $6 per kg. Opening material inventory is 1,500 kg and the closing inventory target is 2,500 kg. What is the material purchases budget in $?
The purchases budget is $66,000. Usage is 10,000 kg, and the company must buy an extra 1,000 kg to raise inventory from 1,500 kg to 2,500 kg. Purchases are therefore 11,000 kg at $6 per kg, which equals $66,000.
- A$54,000
- B$66,000Correct
- C$60,000
- D$11,000
Explanation
Usage is 5,000 x 2 = 10,000 kg. Purchases = usage + closing inventory - opening inventory = 10,000 + 2,500 - 1,500 = 11,000 kg. At $6 per kg this is $66,000. The $54,000 figure reverses the inventory adjustment.
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