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CMA Foundation · Fundamentals of Financial and Cost Accounting · Application of Cost Accounting for Business Decisions

Iyer Industries budgets 5,000 units of output needing 3 kg of raw material each, at Rs 20 per kg. Opening raw material stock is 2,000 kg and the desired closing stock is 3,500 kg. Wastage is nil. The budgeted raw material purchase cost is:

The budgeted purchase cost is Rs 3,30,000. Production needs 15,000 kg; adding closing stock of 3,500 kg and deducting opening stock of 2,000 kg gives purchases of 16,500 kg, which at Rs 20 per kg costs Rs 3,30,000.

  1. ARs 3,30,000Correct
  2. BRs 3,00,000
  3. CRs 2,70,000
  4. DRs 3,60,000

Explanation

Material required for production = 5,000 x 3 = 15,000 kg. Purchases = 15,000 + 3,500 - 2,000 = 16,500 kg. Cost = 16,500 x 20 = Rs 3,30,000. Rs 2,70,000 comes from reversing the stock adjustment (13,500 kg).

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