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ACCA Applied Knowledge · Management Accounting · Nature and purpose of budgeting

Budgeted sales for a product are 8,000 units. Opening inventory of finished goods is 1,500 units and the company wants closing inventory to be 2,000 units. Each unit needs 3 kg of material. Opening material inventory is 4,000 kg and closing material inventory is to be 5,500 kg. How many kilograms of material must be purchased?

The company must purchase 27,000 kg. Production is 8,500 units (8,000 + 2,000 - 1,500), which uses 25,500 kg of material. Adding the 1,500 kg increase in material inventory (5,500 - 4,000) gives purchases of 27,000 kg.

  1. A24,000 kg
  2. B25,500 kgCorrect
  3. C27,000 kg
  4. D28,500 kg

Explanation

Production = 8,000 + 2,000 - 1,500 = 8,500 units. Material used = 8,500 x 3 = 25,500 kg. Purchases = 25,500 + 5,500 closing - 4,000 opening = 27,000 kg. So the correct answer is 27,000 kg, not 25,500 kg, which is the usage figure with the material inventory change ignored.

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