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CA Intermediate · Cost and Management Accounting · Budgets and Budgetary Control

Gupta Appliances expects to sell 12,000 units next quarter. Opening finished goods stock is 1,500 units and the target closing finished goods stock is 2,500 units. Each unit needs 3 kg of raw material costing ₹20 per kg. Opening raw material stock is 4,000 kg and the target closing raw material stock is 6,000 kg. What is the budgeted raw material purchase cost?

The budgeted raw material purchase cost is ₹8,20,000. Production required is 13,000 units, needing 39,000 kg of material. Adding the 2,000 kg increase in raw material stock gives 41,000 kg purchases, which at ₹20 per kg equals ₹8,20,000.

  1. A₹8,20,000Correct
  2. B₹7,60,000
  3. C₹7,40,000
  4. D₹7,00,000

Explanation

Production = 12,000 + 2,500 - 1,500 = 13,000 units. Material needed = 13,000 × 3 = 39,000 kg. Purchases = 39,000 + 6,000 - 4,000 = 41,000 kg, costing 41,000 × 20 = ₹8,20,000. Ignoring the finished goods stock change gives 38,000 kg, or ₹7,60,000, which is wrong.

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