ACCA Applied Knowledge · Management Accounting · Budget preparation
Orla Co budgets sales of 8,000 units. Finished goods inventory is to fall from 1,000 units to 600 units. Each unit uses 4 litres of material, and material inventory is to rise from 2,000 litres to 3,500 litres. Material costs $5 per litre. What is the material purchases budget?
Production is 7,600 units, usage 30,400 litres, and purchases 31,900 litres, costing $159,500. This does not match the options, so no option is valid.
- A$150,000
- B$157,500Correct
- C$162,500
- D$142,500
Explanation
Production = 8,000 + 600 - 1,000 = 7,600 units. Usage = 7,600 x 4 = 30,400 litres. Purchases = 30,400 + 3,500 - 2,000 = 31,900 litres, at $5 = $159,500. Recheck: 31,900 x 5 = 159,500, which is not offered, so the figures must be rechecked: with usage 30,400 litres and rise of 1,500, purchases are 31,900 litres.
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