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

Mehta Foods budgets production of 6,000 units, needing 3 kg of raw material per unit at Rs 40 per kg. Opening raw material stock is 2,000 kg and the required closing stock is 3,500 kg. What is the budgeted raw material purchase cost?

The budgeted purchase cost is Rs 7,80,000. Production needs 18,000 kg, closing stock adds 3,500 kg and opening stock of 2,000 kg is deducted, giving 19,500 kg purchases. At Rs 40 per kg, this costs Rs 7,80,000.

  1. ARs 6,60,000
  2. BRs 7,20,000
  3. CRs 7,80,000Correct
  4. DRs 8,40,000

Explanation

Material needed for production = 6,000 x 3 = 18,000 kg. Purchases = 18,000 + 3,500 closing - 2,000 opening = 19,500 kg. Cost = 19,500 x 40 = Rs 7,80,000. Rs 7,20,000 ignores the stock adjustment altogether, and Rs 6,60,000 wrongly nets both stock changes in the opposite direction.

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