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

Sharma Plastics expects to sell 8,000 units in the next quarter. Opening finished stock is 1,200 units and the desired closing stock is 1,700 units. Each unit needs 2.5 kg of raw material. Opening raw material stock is 3,000 kg and the desired closing stock is 2,000 kg. How many kg of raw material should be purchased?

Production is 8,500 units, needing 21,250 kg of material. Adjusting for closing stock of 2,000 kg and opening stock of 3,000 kg gives purchases of 20,250 kg.

  1. A21,500 kgCorrect
  2. B22,500 kg
  3. C23,500 kg
  4. D21,000 kg

Explanation

Production = 8,000 + 1,700 - 1,200 = 8,500 units. Material needed = 8,500 x 2.5 = 21,250 kg. Purchases = 21,250 + 2,000 - 3,000 = 20,250 kg. Check: 20,250 does not appear, so recompute: 21,250 + 2,000 = 23,250; less 3,000 = 20,250. The listed options do not include this, so the key is wrong.

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